An Equitable Approach to Addressing 'Windfall' Benefits

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Scholarly Works Faculty Scholarship

2012

The Social Security Benefits Formula and the Windfall Elimination The Social Security Benefits Formula and the Windfall Elimination

Provision: An Equitable Approach to Addressing 'Windfall' Benefits Provision: An Equitable Approach to Addressing 'Windfall' Benefits

Francine J. Lipman University of Nevada, Las Vegas -- William S. Boyd School of Law

Alan Smith

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Recommended Citation Recommended Citation Lipman, Francine J. and Smith, Alan, "The Social Security Benefits Formula and the Windfall Elimination Provision: An Equitable Approach to Addressing 'Windfall' Benefits" (2012). Scholarly Works. 941. https://scholars.law.unlv.edu/facpub/941

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THE SOCIAL SECURITY BENEFITS FORMULAAND THE WINDFALL ELIMINATION PROVISION:

AN EQUITABLE APPROACH TO ADDRESSING 'WINDFALL'BENEFITS

Francine Lipman* and Alan Smith**

TABLE OF CONTENTS

I. INTRODUCTION. ...................................... ......... 182

II. THE SOCIAL SECURITY BENEFITS FORMULA AND THE WEP ............ 185A. Social Security: Purpose and Principles .................... 185B. Social Security: Eligibility Basics.......................186C. The Social Security Benefits Formula............... ...... 187D. Effect of Noncovered Employment under the Social Security

Benefits Formula ....................................... 191E. Towards Enactment of the WEP ........................ 194F. WEP: Legislative History ................................... 196G. The WEP Formula ...................................... 198H. WEP Applicability . ........................... ...... 201

III. WEP: THE PROBLEMS .......................................... 202

A. Disproportionate Impact.......................................2021. The WEP's Regressive Nature..........................2032. Disproportionate Impact of the Substantial Earnings Test............2043. Comparison with a Proportional WEP............ ................. 206

B. The SSA Has Insufficient Information to Apply the WEP to All ofthe Targeted Beneficiaries.......................................211

C. Public Misperception and Resentment: SSA Efforts to Educate thePublic ............................. ............. 2151. Accounts of Personal Hardship ................ ...... 2162. Public Misperception and Resentment ........... ....... 217

a. The Myth of a Stolen Entitlement ............ ...... 218b. The Myth of Discriminatory Treatment of Public Servants...218C. The Myth of a Benefits Reduction ........... ........ 220

3. SSA Efforts to Communicate with the Public Regarding theWEP......................... ............... 220

IV. LEGISLATIVE ACTION. ........................... ........ 225A. The Social Security Fairness Act .......... ................... 226B. The WEP Relief Act. ................................ 228C. The Public Servant Retirement Protection Act ......................... 232

181

Journal ofLegislation

V. RECOMMENDATION ........................................... ....... 238

VI. CONCLUSION .................................................. ..... 243

APPENDIX ................................................. 247

I. INTRODUCTION

Joan Piacquadio, at the time a 73-year-old widow, testified before theSubcommittee on Social Security, Pensions, and Family Policy in 2007 about thehardship that she had suffered by operation of the Windfall Elimination Provision(WEP).' During her 50-year career as a registered nurse, Joan worked for 25 yearsin her local public school system.2 While Joan's testimony does not provide precisedetails, it is clear that some portion of her service for the public school systemconstituted noncovered employment - employment for which Joan received

4earnings that were not subject to Social Security taxes. Unfortunately for Joan, anemployment record that reflected noncovered employment subjected her toapplication of a controversial provision of the Social Security Act - the WEP.' Byoperation of the WEP, Joan qualified for a Social Security benefit of $167 permonth ($2,004 per year) after a 50-year career.' Forced to work well into her elderyears to make ends meet, Joan only retired after her heart failed at age 73 and she

7underwent a triple-bypass surgery.

Certain federal, state, and local government employees do not pay into theSocial Security system, but rather, pay into alternative government pension plans.For purposes of the Social Security Act, where a worker pays into an alternativegovernment pension plan, the worker's employment constitutes noncoveredemployment.9 Even if a worker's employment record reflects significant periods ofnoncovered employment, the worker may still qualify for Social Security coverage

* William S. Boyd Professor of Law, University of Nevada, Las Vegas. The author gratefullyacknowledges the William S. Boyd School of Law for generous research support and generous legal scholars,including John Valery White, Timothy A. Canova, Michael Olivas, Kevin R. Johnson, Gail L. Richmond,Dorothy A. Brown, Shu-Yi Oei and Paul L. Caron for their beneficent support of my scholarship. This articleis dedicated to James E. Williamson. Without Professor Williamson's brilliant, bold and inimitable intellect,curiosity and steadfast critique this article would not have been bom.

** J.D., William S. Boyd School of Law, University of Nevada, Las Vegas; M.A., Stanford University1. Government Pension Offset (GPO) and Windfall Elimination Provision (WEP): Policies Affecting

Pensions from Work Not Covered by Social Security: Hearing Before Subcomm. On Soc. Sec., Pensions, andFamily Planning, I 10th Cong. 49 (2007) [hereinafter Hearing Before Subcomm. On Soc. Sec., Pensions, andFamily Planning].

2. Id.3. Id.4. 42 U.S.C. § 410(a)(7) (2008).5. Hearing Before Subcomm. On Soc. Sec., Pensions, and Family Planning, supra note 1, at 49; 42

U.S.C. § 415(a)(7)(A) (2006).6. Id.7. Id.8. 42 U.S.C. § 410(a)(5), (7).9. Id.

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An Equitable Approach to Addressing 'Windfall' Benefits

because she satisfies the minimum requirement of 10 years (40 quarters) ofearnings in Social Security covered employment.'o However, an employment recordthat reflects both covered and noncovered employment presents a challenge toequitable application of the Social Security Act. To determine the benefits to whicha worker is entitled, the Social Security Act first employs an averaging provisionthat considers 35 years of covered employment." Where an individual'semployment record does not reflect 35 years of covered employment, the averagingprovision compresses the worker's average earnings.12 Effectively, a lifetime high-income worker who held both covered and noncovered employment appears to be alifetime low-income worker by operation of the averaging provision." The secondstep in determining a worker's Social Security benefits entails application of aprogressive benefits formula to the workers average earnings.14 By operation of theaveraging provision and the progressive benefit formula, a high-income workerwho held both covered and noncovered employment received a higher thanstatutorily intended replacement rate (the ratio of benefits to average earnings) priorto 1983." In an effort to downward-adjust Social Security benefits for workers whoheld both covered and noncovered employment, Congress enacted the WEP in1983.16

According to the Government Accountability Office, in 2007, the SocialSecurity system covered approximately 96 percent of the American workforce; theremaining four percent of noncovered workers were predominantly publicemployees. 7 The four percent of the American workforce that does not pay into theSocial Security system consists of approximately 6.8 million state and localgovernment workers, and half a million federal government workers. Thus, morethan seven million federal, state, and local government employees can potentiallybe subject to the WEP, and the type of hardship, which Joan Piacquadioexperienced.

Reducing the Social Security benefits of over one million retired federal, state,and local government employees," the WEP is an extremely controversialcomponent of the Social Security Act that has elicited a variety of criticisms fromscholars and opponents.2 For example, critics charge that the WEP, due to its

10. 42 U.S.C. § 414(a)(2) (2006); 42 U.S.C. § 413(a)(2)(A)(ii) (2006); 42 U.S.C. § 415(a)(7)(D).11. 42 U.S.C. § 415(b)(1)(A); 42 U.S.C. § 415(b)(2)(A)(i); 42 U.S.C. § 415(b)(2)(B)(i).

12. See discussion infra Part 2.D: Effect of Noncovered Employment Under the Social Security BenefitsFormula.

13. Id.14. 42 U.S.C. § 415(a)(1)(A).15. See discussion infra Part 2.D: Effect of Noncovered Employment Under the Social Security Benefits

Formula.

16. See discussion infra Part 2.E: Towards Enactment of the WEP.17. U.S. Gov'T ACCOUNTABILITY OFFICE, GAO-08-248T, SOCIAL SECURITY: ISSUES REGARDING THE

COVERAGE OF PUBLIC EMPLOYEES: STATEMENT OF BARBARA D. BOVBJERG, DIRECTOR EDUCATION,WORKFORCE, AND INCOME SECURITY 1 (2007).

18. Id.

19. U.S Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 4.

20. ALLISON M. SHELTON, CONG. RESEARCH SERV., 98-35, SOCIAL SECURITY: THE WINDFALL

ELIMINATION. PROVISION (WEP) 6 (2010); See Discussion infra Part 3: WEP: The Problems.

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184 Journal ofLegislation [Vol. 39:2

21regressive structure, disproportionately affects low-income workers. Anotherproblem surrounding the WEP involves the administrative challenge of enforcingthe provision, as a disparity presently exists in the degree to which the SSA

22enforces the WEP against federal retirees, as compared to state and local retirees.Finally, SSA efforts to communicate with the public about the provision are

23insufficient, resulting in public misperception and resentment, as well assignificant hardship when workers mistakenly fail to account for the provision'seffects.24

Recognizing the considerable problems underlying the WEP, legislators haveconsistently sought to modify, replace, or repeal the WEP. During the previousdecade and a half, Senators and Representatives have introduced at least 35 billsbefore Congress addressing the WEP. Suggestive of Congressional interest inreliving public servants from the potential hardships stemming from the WEP, one

26bill has received as many as 337 cosponsors in the House of Representatives.Together, the bills represent four distinct legislative proposals: (1) the SocialSecurity Fairness Act, (2) the WEP Relief Act (2004 and later),2 (3) the WEPRelief Act (pre-2004),29 and (4) the Public Servant Retirement Protection Act.

This Article begins in Part II by explaining the rationale behind the WEP. PartII explains the policy underlying the Social Security system, the operation of theSocial Security benefits formula, the effect of noncovered employment, and theoperation of the WEP. Next, in Part III, this Article examines the WEP's underlyingproblems, which include structural and administrative issues that disproportionately

21. Jeffery R. Brown & Scott Weisbenner, The Distributional Effects of the Social Security WindfallElimination Provision, THE NATIONAL BUREAU OF ECONOMIC RESEARCH 8-13 (Sept. 2008),http://www.nber.org/programs/ag/rrc/08-05%20Brown%20OWeisbenner/2OFINAL.pdf (last visited Jan. 15,2012).

22. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 4-7.

23. Brown & Weisbenner, supra note 21, at 19; ALLISON M. SHELTON, CONG. RESEARCH SERv., 98-35,SOCIAL SECURITY: THE WINDFALL ELIMINATION PROVISION (WEP) 19 (2010).

24. Id. at 6.25. H.R. 1332, 112th Cong. (2011); H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); S. 113,

112th Cong. (2011); S. 2010, 112th Cong. (2011); H.R. 235, 11Ith Cong. (2009); H.R. 1221, 111th Cong.(2009); H.R. 2145, 11Ith Cong. (2009); S. 490, 11Ith Cong. (2009); S. 484, 11Ith Cong. (2009); H.R. 82,110th Cong. (2007); H.R. 726, 110th Cong. (2007); H.R. 2772, 110th Cong. (2007); S. 206, 110th Cong.(2007); S. 1647, 110th Cong. (2007); H.R. 147, 109th Cong. (2005); H.R. 1690, 109th Cong. (2005); H.R.1714, 109th Cong. (2005); H.R. Res. 987, 109 Cong. (2006); S. 619, 109th Cong. (2005); S. 866, 109thCong. (2005); H.R. 594, 108' Cong. (2003); H.R. 2011, 108th Cong. (2003); H.R. 2611, 108th Cong. (2003);H.R. 4234, 108th Cong. (2004); H.R. 4391, 108th Cong. (2004); H.R. Res. 523, 108th Cong. (2004); S. 349,108th Cong. (2003); S. 1011, 108th Cong. (2003); S. 2455, 108th Cong. (2004); H.R. 1073, 107th Cong.(2001); H.R. 2638, 107th Cong. (2001); S. 1523, 107th Cong. (2001); S. 2521, 107th Cong. (2002); H.R. 860,106th Cong. (1999); H.R. 2549, 105th Cong. (1997).

26. H.R. 82, 110th Cong. (2008).27. H.R. 1332, 112th Cong. (2011); S. 2010, 112th Cong. (2011); H.R. 235, 111th Cong. (2009); S. 484,

11Ith Cong. (2009); H.R. 82, 110th Cong. (2007); S. 206, 110th Cong. (2007); H.R. 147, 109th Cong. (2005);S. 619, 109th Cong. (2005); H.R. 594, 108" Cong. (2003); S. 349, 108th Cong. (2003); H.R. 2638, 107thCong. (2001); S. 1523, 107th Cong. (2001).

28. H.R. 2145, 111th Cong. (2009); H.R. 726, 110th Cong. (2007); H.R. 1690, 109th Cong. (2005); H.R.4234, 108th Cong. (2004).

29. H.R. 2011, 108th Cong. (2003); S. 1011, 108th Cong. (2003); H.R. 1073, 107th Cong. (2001); S.2521, 107th Cong. (2002); H.R. 860, 106th Cong. (1999); H.R. 2549, 105th Cong. (1997).


impact low-income workers. Moreover, Part III examines the public misperceptionand resentment surrounding the WEP, and deficiencies in the Social SecurityAdministration's efforts to communicate the rational underlying the provision to thepublic. Part IV considers the considerable legislative effort over the past decade anda half to modify, replace, or repeal the WEP, providing an explanation and analysisof each bill. Finally, building on the concepts developed in each of the previoussections, Part V presents an alternative approach to eliminating the "'windfall"'benefits that accrue to noncovered workers. The alternative approach balances thefundamental tenants of the Social Security system - a progressive benefits structureand the earned right nature of benefits. As such, the approach ensures equitablebenefits to noncovered workers.

II. THE SOCIAL SECURITY BENEFITS FORMULA AND THE WEP

A. Social Security: Purpose and Principles

In 1935, at the height of the Great Depression, Congress answered PresidentRoosevelt's call to protect the American workforce against the "hazards andvicissitudes of life,"30 by enacting the Social Security Act of 1935 - an actoriginally intended to raise the general welfare by providing federal old-agebenefits and by enabling the states to provide family aid and unemploymentcompensation.31 Through subsequent amendment, the Social Security Act hasexpanded, providing old-age, disability, and survivors' insurance to insuredworkers, as well as their dependents - presently the Social Security system coversapproximately 96 percent of the American workforce.32 Although Congressdesigned the system to extend protection to retiring workers and their families, theSocial Security benefits formula does not replace 100 percent of a worker'spreretirement income, but rather, provides a safety net by replacing a percentage ofpreretirement income. Given the decision to only replace a percentage ofpreretirement income, the system requires a progressive benefit structure - low-income workers receive benefits representing a greater percentage of preretirementincome than their high-income counterparts - to provide, an adequate standard ofliving for retiring low-income workers. 34 Thus, the Social Security systemredistributes income from high-income workers to workers with low lifetimeearnings, and even transfers income based on family structure and lifespan.3 sDespite the progressivity of the Social Security benefits formula, a fundamentalprinciple of the Social Security system is that entitlement to benefits through the

30. President Franklin D. Roosevelt, Message to Congress Reviewing the Broad Objectives andAccomplishment of the Administration (June 8, 1934).

31. H. R. REP. No. 615 (1935).32. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 3-4.33. Francine Lipman & James E. Williamson, Social Security Benefits 101, 53 ORANGE COUNTY LAW

30,31 (2011).34. Id.35. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 3.

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system represents an "'earned right."" As such, the benefits to which a retiringworker is entitled reflect contributions, which the worker, and her employer, paid inSocial Security taxes."

B. Social Security: Eligibility Basics

Under Title II of the Social Security Act, a worker's eligibility for SocialSecurity benefits based on her own work record depends upon tworequirements. First, the worker must receive sufficient taxable earnings inSocial Security covered employment for 10 years (40 quarters)." Beginningin 1978, the Social Security Administration (SSA) indexed the amount oftaxable earnings required for a quarter of coverage to wage growth;" in 2013,the amount of taxable earnings required for a quarter of coverage is $1,160.40Upon earning 40 credits for social security covered employment, the workerbecomes a fully insured individual;41 however, the worker is not eligible toreceive Social Security benefits until she attains retirement age.

Retirement age varies according to the date on which a worker attainsearly retirement age and whether a worker elects to retire at early retirementage, full retirement age, or a deferred retirement age. For the purposes of old-age insurance benefits, early retirement age means age 62.42 A worker firstbecomes eligible to receive Social Security benefits upon attaining earlyretirement age;43 however, Title II provides for a reduction of a worker'sprimary insurance amount (PIA) - the monthly benefit payable to the workerat full retirement age - if a worker elects to receive Social Security benefits atearly retirement age.44 Specifically, a worker reaching early retirement age onor before December 31, 2016 that elects to receive Social Security benefitsupon attaining early retirement age receives a 25 percent reduction in PIAgradually increasing to a 30 percent reduction in PIA for workers attainingearly retirement age on or after January 1, 2022.45 For a worker attaining earlyretirement age before January 1, 2017, full retirement age means age 66;46 by

36. Penalty for Public Service: Do the Social Security Government Pension Offset and WindfallElimination Provision Unfairly Discriminate Against Employees and Retirees?: Hearing Before the SenateCommittee on Governmental Affairs, 108th Cong. 13 (2003) [hereinafter Hearing: Penalty for Public Service](statement of Jo Anne B. Barnhart, Commissioner of Social Security).

37. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 3.38. 42 U.S.C. § 414(a)(2) (2006); 42 U.S.C. § 413(a)(2)(A)(ii) (2006).39. 42 U.S.C. § 413(d)(2).40. Social Security Administration: Fact Sheet: 2013 Social Security Changes, available at

www.ssa.gov/pressoffice/factsheetscolafacts20l3.html; Cost-of-Living Increase and Other Determinations for2012, 76 Fed. Reg. 66,111, 66,115 (Oct. 25, 2011) (setting forth 2012 limit of $1,130).

41. 42 U.S.C. § 414(a).42. 42 U.S.C. § 416(l)(2) (2006).43. 42 U.S.C. § 402(a)(2) (2006); 42 U.S.C. § 415(a)(3)(B) (2006).44. 42 U.S.C. § 4 02(q)(1).45. 42 U.S.C. § 402(q)(1), (9); 42 U.S.C. § 416(l)(1)(D).46. 42 U.S.C. § 416(l)(1)(C); For workers attaining early retirement age on or after January 1, 2022, full

retirement age means age 67. 42 U.S.C. § 416(l)(1)(E). The statute provides for incremental increases in full

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definition, PIA is 100 percent for workers electing to receive Social Securitybenefits at full retirement age. Finally, workers may elect to defer retirementage to age 70 receiving annual deferred retirement credits to PIA of 8 percentup to 132 percent of PIA.47

C. The Social Security Benefits Formula

The monthly benefit to which a worker is entitled upon attaining full retirementage is the worker's PIA.4 8 The SSA determines a worker's PIA by first calculatingthe workers average indexed monthly earnings (AIME). 49 For a worker attainingage 21 after 1950, the formula for AIME considers the worker's annual earnings inSocial Security covered employment between the calendar year after which theworker reaches age 21 and the calendar year in which the worker reaches earlyretirement age.5 Title II then provides for wage indexing - based on the nationalaverage wage index - of annual earnings for each covered year of employment toaccount for wage growth during the period in consideration." From the 40 years ofwage indexed annual earnings in consideration, the formula for AIME disregardsannual earnings for the worker's five lowest-paid years of earnings.5 Thus, AIMEis concerned with a worker's 35 highest earning years in Social Security coveredemployment. Finally, the SSA derives AIME by totaling annual earnings from theworker's 35 highest-earning years, and dividing the sum by 420 - the number ofmonths in 35 years.

AIME = SalaryYeart + SalaryYear2. .+SalaryYear3535 years*12 months (or 420 months)

retirement age for workers attaining early retirement age between January 1, 2016 and December 31, 2021. 42U.S.C. § 416(l)(1)(D), (3)(B).

47. 42 U.S.C. § 402(w)(1), (2), (6)(D). (The 8 percent annual credit applies to individuals attaining earlyretirement age in calendar years after 2004. The statute provides for alternative deferred retirement credits forindividuals attaining early retirement age on or before 2004.) 42 U.S.C. § 402(w)(6)(A)-(D). In determiningthe deferred retirement credit to which an individual is entitled, the Social Security Act considers the numberof increment months for such individuals. Increment months include the number of elapsed months from themonth in which the individual reaches retirement age to the month before the month in which the individualreaches age 70. 42 U.S.C. § 402(w)(2)(A), (B)(i)-(iii). If the individual reaches early retirement age beforeJanuary 1, 2017, then the individual will attain full retirement age at 66 years of age. 42 U.S.C. § 416(l)(1)(C).Thus, for such an individual, the statute is concerned with up to 48 increment months. 42 U.S.C. §402(w)(2)(A), (B)(i)-(iii). To determine the deferred retirement credit, the statute instructs the SSA to derivethe product an individual's total increment months multiplied by two-thirds of one percent (for an individualreaching early retirement age after 2004. If the individual defers retirement until age 70, she will receive themaximum deferred retirement credit - 132 percent of PIA (48 * ((2/3) * .01)). As noted above, for workersattaining early retirement age after January 1, 2022, full retirement age means age 67. 42 U.S.C. §416(l)(1)(E). Thus, for such an individual, the statue will consider a maximum of 36 increment months. 42U.S.C. § 402(w)(2)(A), (B)(i)-(iii). If a worker reaches early retirement age after January 1, 2022, and defersretirement until age 70, she will receive the maximum deferred retirement credit for such an individual - 124percent of PIA (36 * ((2/3) * .01)).

48. 42 U.S.C. § 415(a)(1)(A) (2006).49. Id.50. 42 U.S.C. § 415(b)(1)(A).51. 42 U.S.C. § 415(b)(3)(A).52. 42 U.S.C. § 415(b)(2)(A)(i), (b)(2)(B)(i).53. 42 U.S.C. § 415(b)(1).

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Once the SSA has computed a worker's AIME, Title II requires the SSA toapply a formula to AIME to derive the worker's PIA.54 The formula separatesAIME into three brackets, which are delineated by dollar amounts - the dollaramounts separating each bracket are known colloquially as "bendpoints."" Title IIprovides for wage indexing of the bendpoints, based on the national average wageindex, to insure that the PIA reflects increases in the standard of living forsuccessive generations of retirees. For a worker who first becomes eligible toreceive Social Security benefits in 2012 - that is, a worker who attains earlyretirement age (62) in 2012 - the bendpoints are $767 and $4,624 ($791 and $4,768in 2013).17 Thus, the brackets of AIME are as follows: the first bracket includesAIME up to $767 (the first bendpoint); the second bracket includes AIME between$768 and $4,624 (the second bendpoint); and the third bracket includes AIME from$4,625 to the social security taxable earning ceiling. As with other elements of theAIME and PIA equations, Title II provides for wage indexing of maximum taxableearnings," resulting in a taxable earning ceiling of $110,100 in 2012 ($113,700 in2013),9 and a maximum AIME of $8,199 ($8,539 in 2013)"o for a worker attainingearly retirement age in 2012.61 The formula for PIA applies a different percentage

54. 42 U.S.C. § 415(a)(1)(A).

55. 42 U.S.C. § 415(a)(1)(A)(i)-(iii), (a)(B)(i); Cost-of-Living Increase and Other Determinations for2012, 76 Fed. Reg. 66,111, 66,115 (Oct. 25, 2011).

56. 42 U.S.C. § 415(a)(B)(ii); Cost-of-Living Increase and Other Determinations for 2012, 76 Fed. Reg.66,111, 66,115 (Oct. 25, 2011).

57. Cost-of-Living Increase and Other Determinations for 2012, 76 Fed. Reg. 66,111, 66,115 (Oct. 25,2011).

58. 42 U.S.C. § 415(e)(1). The bendpoints for a covered worker who attains early retirement in 2013 are$791 and $4,768. Social Security Administration, Primary Insurance Amount, available atwww.ssa.gov/OACT/COLA/piaformula.html.

59. Cost-of-Living Increase and Other Determinations for 2012, 76 Fed. Reg. 66,114, 66,115 (Oct. 25,2011). The maximum taxable earnings ceiling for 2013 is $113,700. Social Security Administration: FactSheet: 2013 Social Security Changes, available at www.ssa.gov/pressoffice/factsheetscolafacts2013.html.

60. The maximum AIME for a working retiring in 2013 is $8,539. Id.61. For purposes of the Internal Revenue Code, maximum taxable earnings equals the Social Security

Act's contribution and benefit base. 26 U.S.C. § 3121(a)(1) (2006). Calculating the contribution and benefitbase under the Social Security Act is complex. For example, where a worker received earnings in SocialSecurity covered employment after 1981, the contribution and benefits base equals the product of $29,700 andthe quotient obtained by dividing the national average index for the calendar year preceding a year in whichthe Commissioner of Social Security increases benefits due to a cost of live increase by the national averagewage index for the calendar year 1992. 42 U.S.C. § 430(c) (2006). The initial dollar value that the SSAmultiples by the above ratio varies based on the year in which a worker received earnings from employment.42 U.S.C. § 430(b), (c). Given the calculation for the contribution and benefit base, maximum taxableearnings vary from year to year, and have generally increased with inflation. See, Maximum Taxable Earnings(1937 - 2012) SOCIAL SECURITY ONLINE, http://www.ssa.gov/planners/maxtax.htm (last visited Mar. 10,2012) for a list of the dollar values representing maximum taxable earnings from 1937 to 2012. To determineAIME for a worker who receives maximum taxable earnings during each of 35 years in covered employment,the Social Security Act requires the SSA to multiply earnings in a given year by the quotient obtained bydividing the national average wage index for the calendar year in which a worker attains 60 years of age bythe national average wage index for the year in which the worker received the earnings. 42 U.S.C. §415(b)(3)(A)(i), (ii). If one performs this calculation for maximum taxable earnings from calendar years 1978to 2012, and divides by 35 years of employment, one finds that the worker received average annual earningsof $98,388. To avoid adding a layer of complexity, anytime this Article refers to maximum taxable earnings,it will assume average annual wage indexed earnings of $98,388. Note that technically, the value for a workerwho earned maximum taxable earnings will be above or below this value in most calendar years.

An Equitable Approach to Addressing 'Windfall'Benefits

factor to each bracket of AIME: PIA includes 90 percent of the first bracket, 32percent of the second bracket, and 15 percent of the third bracket.6 Where theproduct of an AIME bracket multiplied by a percentage factor does not end in amultiple of $0.10, Title II provides for rounding the product down to the nearestmultiple of $0.10. The sum of these amounts equals PIA.

PIA = 0.9*min(AIME, $767)+ 0.32*max(0,min(AIME, $4,624)-$767)+0.15*max(0,AIME-54,624)

To illustrate application of the formulas for AIME and PIA, consider examplesof a hypothetical low-income worker, average-income worker, and high-incomeworker. First, the low-income worker held Social Security covered employment for35 years during which time she earned an average indexed annual wage of $9,000.The low-income worker's AIME is $750 (($9,000 * 35 years) / 420).6 Attainingearly retirement age in 2012, the low-income worker has a PIA of $675 ($750 *.9).66 By contrast, the middle-income worker, who also worked in Social Securitycovered employment for 35 years, earned an average indexed wage of $45,000. Assuch, the middle-income worker's AIME is $3,750 (($45,000 * 35 years) / 420)and, if she attains early retirement age in 2012, her PIA is $1,644.80 (($767 *.9) +(($3,750 - $767) * .32)." Finally, the high-income worker, who also held SocialSecurity covered employment for 35 years, but earned an average indexed annualwage equal to the Social Security taxable earning ceiling of $98,388 has an'AIME equals $8,199 (($98,388 * 35) / 420).70 If the high-income worker attainsearly retirement age in 2012, his PIA will be the maximum PIA available to aworker of his birth cohort - $2,460.70 (($767 *.9) + (($4,624 - $767) * .32) +(($8,199 - $4,624) * .15).71

Application of Social Security benefits formula for a worker with AIME of $750First Bracket of AIME $750 * .9 = $675Total PIA $675

Application of Social Security benefits formula for a worker with AIME of $3,750

62. 42 U.S.C. § 415(a)(1)(A)(i)-(iii).63. 42 U.S.C. § 415(a).64. 42 U.S.C. § 414(a)(1)(A) (2006).65. 42 U.S.C. § 415(b).66. 42 U.S.C. § 415(a).67. 42 U.S.C. § 415(b).68. 42 U.S.C. § 415(a).69. See Discussion supra Footnote 61.70. 42 U.S.C. § 415(b); see Social Security Benefit Amounts, SOCIAL SECURITY ONLINE,

http://www.ssa.gov/oact/COLA/Benefits.html (last visited Mar. 10, 2012) (providing that a worker whoreceived maximum taxable earnings over 35 years of covered employment has an AIME of $8,199 if shereaches early retirement age in 2012. This confirms the discussion from Footnote 61 ($8,199 * 12= $98,388).

71. 42 U.S.C. § 415(a).

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Journal of Legislation

First Bracket of AIME $767 * .9 = $690.3

Second Bracket of AIME $3,750 * .32 = $954.56

Total PIA $1,644.86 (rounded down to $1,644.80)

Application of Social Security benefits formula for a worker with AIME of $8,199First Bracket of AIME $767 * .9 = $690.3

Second Bracket of AIME $3,857 * .32 = $1,234.24

Third Bracket of AIME $3,575 * .15 = $536.25

Total PIA $2,460.79 (rounded down to $2,460.70)

As demonstrated by the example of the high-income worker, a workerreceiving maximum taxable earnings in Social Security covered employment for 35years will have a PIA of $2,460.70, or 30 percent of the worker's AIME, if shereaches early retirement age in 2012. Comparing PIA as a percentage of AIME forthe high-income worker to the same figures for the average and low-incomeworkers provides an illustration of the progressivity of the Social Security benefitsformula - a consequence of the operation of the decreasing percentage factorsapplicable to the increasing brackets of AIME. For example, the average-incomeworker receives a PIA of $1,644.80 in the above example, and collects 44 percentof his AIME. His counterpart, the low-income worker, receives a PIA of $675, or90 percent of his AIME. Looking to the "cost/benefit advantage" accruing to themiddle and low-income worker, as compared to the high-income worker, similarlyillustrates the progressivity of the formula.7 In the above example, the high-incomeworker receives a monthly benefit 50 percent larger than the middle-income workerand 265 percent larger than the low-income worker; however, during heremployment, the high-income worker paid 119 percent more in Social Securitytaxes than the middle-income worker, and 993 percent more than the low-incomeworker."

Comparison of PIA, Replacement Rates, and Employee ContributionsWorker PIA Replacement Rate Employee

Contributions

High-Income $2,460.70 30 percent $213,502Average-Income $1,644.80 44 percent $97,650Low-Income $675 1 90 percent $19,530

72. Lipman & Williamson, supra note 39, at 10, 11 (2011).73. Calculations are based on the present FICA employee tax rate of 6.2 percent, 26 U.S.C 3101(a);

($2,460.70 / $1,644.80)* 100 = 150 percent($2,460.70 / $675) * 100 = 365 percent

((($98,388 * 35) *.062) / (($45,000 *35) * .062)) * 100 = 219 percent

((($98,388 * 35) *.062) / (($9,000 *35) * .062)) * 100= 1093 percent

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D. Effect of]Noncovered Employment under the Social Security Benefits Formula

The previous examples demonstrate application of the formulas for anindividual's AIME and PIA to workers with 35 years of Social Security covered

74employment - a full employment record for purposes of the calculation for AIME.However, some workers do not hold Social Security covered employment for 35years, but rather, spend varying portions of their careers in noncoveredemployment. The possibility of holding employment that is not covered by theSocial Security system is a consequence of the gradual process by which Congressextended coverage to the American workforce. When Congress enacted the SocialSecurity Act in 1935, it extended coverage to most workers in commerce andindustry - approximately 60 percent of the workforce at the time. Congress didnot originally extend Social Security coverage to federal government employeesbecause they received pension benefits through the Civil Service RetirementSystem.

The Social Security Amendments Act of 1983 extended mandatory SocialSecurity coverage to federal employees hired after December 31, 1983; however,the Act did not extend Social Security coverage to federal employees who begantheir employment prior to the effective date. Moreover, Title II of the SocialSecurity Act permits federal employees to elect coverage under the Federal

78Employees Retirement Act of 1986 in lieu of the Social Security Act.Additionally, in 1935, Congress did not extend Social Security coverage to stateand local government employees due to concerns regarding the constitutionality ofimposing a Social Security tax on state governments. Subsequent legislation in1950 permitted state and local governments that lacked a pension plan to electcoverage for their employees through the Social Security system. Additionallegislation in 1954 extended the option to state and local government employeesalready covered by a pension plan if a majority of governmental employees within agiven jurisdiction concurred in the decision.so The legislation originally permittedstate and local government employees to terminate coverage under the SocialSecurity system; however, the Social Security Amendments Act of 1983 prohibitsstates from terminating coverage agreements entered into on or after April 20,

74. 42 U.S.C. § 415(b)(1)(A), (b)(2)(A)(i), (b)(2)(B)(i).

75. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 3.

76. Nat'l Comm'n on Soc. Sec., Social Security in America's Future: Final Report of the National

Commission on Social Security, March, 1981, SOCIAL SECURITY ONLINE, available at

http://www.ssa.gov/history/reports/80commission.html.77. Social Security Amendments Act of 1983, Pub. L. No. 98-21, 97 Stat. 65 (codified as amended at 42

U.S.C. 410 (2006)).78. 42 U.S.C. § 410(a)(5)(H) (2008).79. Nat'l Comm'n on Soc. Sec., Social Security in America's Future: Final Report of the National


http://www.ssa.gov/history/reports/80commission.html.80. Nat'l Comm'n on Soc. Sec., Social Security in America's Future: Final Report of the National


http://www.ssa.gov/history/reports/80commission.html.

191I2012-13]


1983.81 Thus, Title II excludes from the definition of Social Security coveredemployment the services performed by federal employees who were employedbefore 1984 or who elected coverage through the Federal Employees RetirementAct." Additionally, the definition excludes services performed by state and localgovernment employees who have not elected coverage through the Social Securitysystem.84 The result is logical as federal, state, and local government employees donot pay Social Security taxes on their earnings, but rather, pay into altemative

. 85pension programs.Even if a worker's employment record reflects significant periods of noncoveredemployment, the worker may still qualify for Social Security coverage because shesatisfies the minimum requirement of 10 years (40 quarters) of earnings in SocialSecurity covered employment. Examples of workers with this type of employmentrecord include public school teachers, who hold Social Security coveredemployment during the summer months, professors at public universities whopreviously worked at private universities, or police officers who retire early andtake employment in the private sector." When a worker has less than 35 years ofSocial Security covered employment, the SSA enters a zero value for wages incalendar years during which the worker only derived earnings through noncoveredemployment. However, the formula for calculating AIME continues to assumethat such workers held Social Security covered employment for 35 years." Theaveraging provision in the Social Security benefits formula has the effect ofdecreasing a worker's average lifetime earnings for workers with both covered andnoncovered employment.

To illustrate application of the Social Security benefits formula to workers whoheld both covered and noncovered employment, consider the hypothetical high-income worker, average-income worker, and low-income worker from the previousexample. Here each worker earned the same average indexed annual salary asbefore - $98,388, $45,000, and $9,000 - respectively; however, each worker heldSocial Security covered employment for 15 years, and noncovered employment for20 years. As the high-income worker's employment record reflects 20 years of zeroearnings for purposes of calculating AIME, his AIME is reduced to $3,513.90(($98,388 * 15) / 420).90 Consequently, if the high-income worker attains earlyretirement age in 2012, she will have a PIA of $1,569.30 (($767 *.9) + (($3,513.90

81. 42 U.S.C. § 418(f) (2006); Social Security Amendments Act of 1983, Pub. L. No. 98-21, 97 Stat. 65(codified as amended at 42 U.S.C. § 418) (1983).

82. 42 U.S.C. § 410(a)(5)(B)(i).83. 42 U.S.C. § 410(a)(5)(H).84. 42 U.S.C. § 410(a)(7).85. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 3.86. 42 U.S.C. § 414(a)(2) (2006); 42 U.S.C. § 413(a)(2)(A)(ii) (2006); 42 U.S.C. § 415(a)(7)(D) (2006).87. 42 U.S.C. 410(a)(5), (7); see also, Brown & Weisbenner, supra note 21, at 1 (citing as an example a

professor who worked for a public university and a private university).88. 42 U.S.C. § 415(b)(1)(A).89. 42 U.S.C. § 415(a)(1)(A), (a)(7)(B)(1); 42 U.S.C. § 415(b)(1).90. 42 U.S.C. § 415(b) (the calculation ignores 42 U.S.C. § 415(b)(1)(A) which considers years of Social

Security covered employment).

192 [Vol. 39:2


- $767) * .32).91 For the high-income worker, the effect of noncovered employmentis to shift a greater portion of her earnings into the first and second brackets ofAIME, resulting in a higher benefits replacement rate (the ratio of PIA to AIME)then her counterpart with 35 years of Social Security covered employment - here,the high-income worked receives a replacement rate of 45 percent.

The effect of an employment record including noncovered employment issimilar for the average-income worker. Here, the average-income worker has areduced AIME of $1,607.10 (($45,000 * 15) / 420)9 and a PIA of $989.10 (($767*.9) + (($1,607.10 - $767) * .32).93 While the average-income worker in theprevious example with 35 years of Social Security covered employment received areplacement rate of 44 percent, her counterpart in the present example receives areplacement rate of 62 percent.

Finally, with an employment record that only reflects 15 years of SocialSecurity covered employment, the low-income worker has AIME of $321.40(($9,000 * 15) / 420)94 and will have a PIA of $289.30 ($389.30 * .9)." Note herethat the low-income worker in this example receives the same replacement rate ashis counterpart with 35 years of Social Security covered employment; given thelow-income worker's very small AIME, the percentage factor for the first bracketof AIME applies regardless of her employment record. These examplesdemonstrate that an employment record that includes noncovered employmentalters the intended progressivity of the Social Security benefits formula bynecessarily increasing benefit replacement rates for average and high-incomeworkers. Politicians and scholars often refer to the higher replacement rates thatcertain workers who held both covered and noncovered employment receive underthe Social Security benefits formula as 'windfall' benefits.

AIME PIA Replacement AIME PIA Replacement(worker with under Rate (based (without Rateidentical Social only on the WEP)earns Security coveredstemming Benefits earnings)only from 35 Formulayears ofcoveredemployment)

High- $8,199 $2,460.70 30 percent $3,513.90 $1,569.30 45 percentIncomeWorker

91. 42 U.S.C. § 415(a) (the calculation ignores 42 U.S.C. § 415(a)(7) which reduces the replacement rateto 40 percent for workers who held noncovered employment).

92. 42 U.S.C. § 415(b) (the calculation ignores 42 U.S.C. § 415(b)(1)(A) which considers years of SocialSecurity covered employment).

93. 42 U.S.C. § 415(a) (the calculation ignores 42 U.S.C. § 415(a)(7) which reduces the replacement rateto 40 percent for workers who held noncovered employment).

94. 42 U.S.C. § 415(b) (the calculation ignores 42 U.S.C. § 415(b)(1)(A) which considers years of SocialSecurity covered employment).

95. 42 U.S.C. § 415(a) (the calculation ignores 42. U.S.C. § 415(a)(7) which reduces the replacementrate to 40 percent for workers who held noncovered employment).

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Average- $3,750 $1,644.80 44 percent $1,607.10 $989.10 62 percentIncomeWorker

Low- $750 $675 90 percent $321.40 $289.30 90 percentIncomeWorker

E. Towards Enactment of the WEP

The National Commission on Social Security, which Congress created inDecember 1977 to study the fiscal status of the Old Age, Survivors, and DisabilityInsurance program and to identify any inequities that affect substantial numbers ofinsured workers, was one of the first governmental bodies to identify the problemof 'windfall' benefits accruing to individuals who held both covered andnoncovered employment. 97 The Commission released its report in March 1981,proposing 88 modifications to the Social Security system. Even so, theCommission concluded that the Social Security system was "sound in principle,"and that the system was the "best structure of income support for the UnitedStates."99 Among the Commission's numerous proposals, the Commissionrecommended that Congress eliminate the 'windfall' benefits accruing toindividuals who held both covered and noncovered employment.oo To redress the'windfall' benefits problem, the Commission recommended a dual approach: (1)mandatory Social Security coverage for all future federal, state, and localgovernment employees"o and (2) a modified formula for deriving the PIA ofexisting federal, state, and local government employees who have futurenoncovered employment.102 While the Commission concluded that in principle,Social Security coverage should extend to the entire American workforce, theCommission ultimately determined that mandatory participation in the SocialSecurity system should not extend to government workers to whom governmentpension programs already provided coverage.os As the Commission's mandatorycoverage proposal did not apply to existing government employees, the proposalleft open the possibility of existing government employees holding futurenoncovered employment.104 For these government workers, the Commissionrecommended a rapid phase-out of windfall benefits through a modification to thePIA formula applicable to future non-covered employment."o The Commission's

96. Social Security Amendments of 1977, Pub. L. No. 95-216, 91 Stat. 1509 (1977) (codified at 42U.S.C. § 907).

97. Nat'1 Comm'n on Soc. Sec., Social Security in America's Future: Final Report of the NationalCommission on Social Security, March, 1981, SOCIAL SECURITY ONLINE, available athttp://www.ssa.gov/history/reports/80commission.html.

98. Id. at 3 and 10.99. Id.

100. Id. at 171.101. Id.

102. Id. at 191.103. Id. at 170.104. Id. at 172.105. Id. at 191.

194 [Vol. 39:2


formula regarded all future employment, whether covered or noncovered, as SocialSecurity covered employment.16 To derive PIA, the Commission's formula appliedthe percentage factors to AIME; however, the formula added an additional step -multiply AIME by the ratio of covered to noncovered AIME to downward adjustPIA in proportion to covered employment.'o

On December 16, 1981, President Reagan promulgated Executive Order 12335,which created the National Commission on Social Security Reform (NCSSR), abipartisan commission tasked with "review[ing] relevant analyses of the current andlong-term financial condition of the Social Security trust funds; indentify[ing]problems that may threaten the long-term solvency of such funds; [and] analyz[ing]potential solutions. . . that will both assure the financial integrity of the SocialSecurity system and the provision of appropriate benefits."' 8 The NCSSR releasedits report on January 20, 1983 recommending, among other more significantproposals, modifying the computation for PIA for workers who split their careersbetween Social Security covered employment and noncovered employment forworkers first reaching early retirement age after 1983.109 The NCSSR suggested twoalternative approaches to addressing the problem of 'windfall' benefits accruing tohigh-income workers with short periods of Social Security covered employment.oTo begin, the NCSSR proposed downward adjusting the PIA benefit formula forworkers who held both covered and noncovered employment by applying thesecond percentage factor (32 percent) to the first bracket of AIME (ordinarily areplacement rate of 90 percent applies to the first bracket)."' However, the NCSSRsuggested that application of the modified formula should be limited by the size ofa worker's noncovered pension - specifically, the reduction in benefits should notexceed the value of the noncovered pension.11 Alternatively, the NCSSR proposedmaintaining the present existing benefit formula, but applying the formula to bothcovered and noncovered employment to determine a replacement rate for coveredemployment based on the ratio of benefits payable to covered employment."' In

106. Id.107. Id. To date, Congress has not implemented this proposal. See generally, 42 U.S.C. § 415 (2006).

However, During markup sessions on the Social Security Amendments Act of 1983, the Subcommittee onSocial Security of the House Committee on Ways and Means considered the NCSSR's alternative approachesto addressing 'windfall' benefits, and concluded that including non-covered wages in the calculation forAIME would pose "insurmountable administrative problems. John A. Svahn & Mary Ross, Social SecurityAmendments of 1983: Legislative History and Summary ofProvisions, 46 SOC. SECURITY BULL. 3, 10 (1983).Senator Hutchison and Representative Brady have introduced a bill that employs a similar mechanism duringevery Congress from 2004 to 2011. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221,111th Cong. (2009); S. 490, 111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong.(2007); H.R. 1714, 109th Cong. (2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455108th Cong. (2004); See infra, Legislative Action; This Article proposes a method of adjusting benefits forworkers who held both covered and noncovered employment that achieves a similar result, but through adifferent mechanism. See Discussion infra Part 6 Recommendation.

108. Exec. Order No. 12,335, 46 Fed. Reg. 61,633 (Dec. 16, 1981).109. Nat'1 Comm'n on Soc. Sec. Review, Report of the National Commission on Social Security Reform,

46 Soc. SECURITY BULL. 3, 7 (1983).110. Id.111. Id.

112. Id.113. Id.

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making its proposals, the NCSSR referenced concern for the equity of permitting'windfall' benefits to workers who held both covered and noncovered employment,and noted that its proposals would impose a net short-range cost.11 Accordingly, aconcern for the solvency of the Social Security System did not motivate theNCSSR's proposals to address these 'windfall' benefits.

F. WEP: Legislative History

The legislative solution to the problem of 'windfall' benefits accruing toworkers who held both covered and noncovered employment - the WEP - wasenacted on April 20, 1983 with passage of the Social Security Amendment Act of1983 ("the Act")."' Aimed at comprehensive reform of the Social Security system,the Act included numerous other notable provisions including: (1) provision for agradual increase in full retirement age from age 65 to age 67,' (2) extension ofmandatory coverage to all federal workers hired after 1984,17 and (3) application ofthe federal income tax to a portion of certain high-income worker's Social Securitybenefits."' The legislative process began on January 26, 1983, six days after theNCSSR released its report, when Senator Robert Dole introduced S.1," whichincluded the NCSSR's recommendations regarding the WEP.120 During February1983, the Subcommittee on Social Security of the House Committee on Ways andMeans began markup sessions on a draft bill.12 During markup sessions, theSubcommittee considered the NCSSR's alternative approaches to addressing'windfall' benefits, and concluded that including non-covered wages in thecalculation for AIME would pose "insurmountable administrative problems."12

Instead, the Subcommittee adopted the NCSSR's recommendation of a reducedpercentage factor for the first bracket of AIME in the calculation for PIA, findingthat modification of the formula would produce results generally similar toinclusion of noncovered wages in AIME.12 However, the House Report of the fullHouse Committee on Ways and Means set the applicable percentage factor at 61percentl24 rather than 32 percent as recommended by the NCSSR. 12 The provision

114. Id.115. Social Security Amendments Act of 1983, Pub. L. No. 98-21, 97 Stat. 65 (codified as amended at 42

U.S.C. 216) (2006).116. Social Security Amendments Act of 1983, Pub. L. No. 98-21, 97 Stat. 65 (codified as amended at 42

U.S.C. 216 (2006)).117. Social Security Amendments Act of 1983, Pub. L. No. 98-21, 97 Stat. 65 (codified as amended at 42

U.S.C. 210 (2006)).118. Social Security Amendments Act of 1983, Pub. L. No. 98-21, 97 Stat. 65 (codified as amended at 26

U.S.C. 86 (2006)).119. S. 1, 98th Cong. (1983).120. John A. Svahn & Mary Ross, Social Security Amendments of 1983: Legislative History and Summary

ofProvisions, 46 Soc. SECURITY BULL. 3, 8 (1983).121. Id. at 10.122. Id.

123. Id.

124. H.R. REP. No. 98-25, pt. 1, Section II Summary of Principal Provisions (1983).125. Nat'l Comm'n on Soc. Sec. Review, Report of the National Commission on Social Security Reform,

46 Soc. SECURITY BULL. 3, 7 (1983).

196 [Vol. 39:2


was to become applicable to individuals reaching age 60 after December 31, 1983,and was accompanied by a guarantee that application of the provision would notresult in a decrease in benefits greater than one-half of a noncovered pension.16 TheCommittee's bill became H.R. 1900 and was passed in the House of Representativeon March 9, 1983 incorporating these provisions.127

The Senate Finance Committee began markup sessions on S.1 the day H.R.1900 passed, allowing the Committee to consider the House bill's proposedmodifications.12 In the Senate Report of March 11, 1983, the Committee adoptedthe NCSSR's recommendation for a modified PIA calculation to eliminate'windfall' benefits that would apply to individuals qualifying for a pension basedon noncovered employment after 1983.129 While the Committee selected 32 percentas the appropriate percentage factor applicable to the first bracket of AIME forworkers who held both covered and noncovered employment, the Committeedeviated from the NCSSR's recommendation by providing a phase-in of the WEP -a reduction of 10 percentage points for each year an individual falls short of 30years of covered employment. 1o The Committee sought to protect individuals withsmall pensions stemming from non-covered employment by limiting operation ofthe provision to a reduction of one-third the value of a noncovered pension.' TheSenate Finance Committee's modified version of S.1 became Amendment Number516, which passed the Senate on March 23, 1983 as an amendment to H.R. 1900132

Thereafter, the House and Senate appointed a Conference Committee thatconsidered the various modifications to the Social Security System on March 24,1983. In considering the WEP, the Conference Committee reached a compromisebetween the House and Senate proposals regarding the percentage factor applicableto the first bracket of AIME for individuals who held both covered and noncoveredemployment, setting the percentage factor at 40 percent. 13 4 The conferenceagreement incorporated the phase-in provision from the Senate's amendmentreducing the applicable percentage factor at a rate of 10 percentage points for eachyear below 30 years of covered employment. ' H.R. 1900, as agreed to in theConference Committee Report, passed in the House on March 24 and the Senate on

116March 25, and President Regan signed the bill into law on April 20, 1983.

126. H.R. REP. No. 98-25, pt. 1, Section II Summary of Principal Provisions (1983).(1983).127. John A. Svahn & Mary Ross, Social Security Amendments of 1983: Legislative History and Summary

of Provisions, 46 Soc. SECURITY BULL. 3, 14 (1983).128. Id. at 17.129. S REP. NO. 98-23, at 5-6 (1983).130. Id.131. Id.132. John A. Svahn & Mary Ross, Social Security Amendments of 1983: Legislative History and Summary

ofProvisions, 46 Soc. SECURITY BULL. 3, 17, 21 (1983).133. Id. at 23.134. H.R. CONF. REP. No. 98-47, p. 13-16 (1983).135. Id.136. John A. Svahn & Mary Ross, Social Security Amendments of 1983: Legislative History and Summary

ofProvisions, 46 Soc. SECURITY BULL. 3, 24 (1983).

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G. The WEP Formula

The WEP is potentially applicable to individuals reaching early retirement ageor becoming eligible for disability benefits after 1985, who also qualify, after 1985,for a government pension based, in whole or in part, upon noncovered

137employment. However, even if a worker meets these two requirements, Title IIprovides several exclusions from application of the WEP. For example, the WEPdoes not apply to: (1) an individual that was a government employee before January1, 1984 to whom the Social Security Amendments Act of 1983 extended mandatorysocial security coverage;"3 (2) individuals who receive benefits from foreign SocialSecurity systems where the foreign country has reached a totalization agreementwith the United States;'39 and (3) individuals who receive a pension under theRailroad Retirement Act of 1937 or 1974.'4 Additionally, the WEP does not applyto individuals who receive at least 30 years of substantial earnings in SocialSecurity covered employment.14' The SSA determines the amount of earningsnecessary to qualify as "substantial earnings" by multiplying the contribution andbenefit base, as determined prior to the Social Security Amendments of 1977($84,300 in 2013) by 25 percent.142 Thus, in 2013, earnings of $21,075 qualify as"substantial earnings." 43 Finally, the WEP is applicable to derivative SocialSecurity benefits, including spousal and dependent benefits; however, the provisiondoes not apply to survivors' benefits.'44

The WEP directs the SSA to follow the traditional procedure for determiningAIME and PIA for a worker with less than 30 years of Social Security coveredemployment who qualifies for a pension based on noncovered employment.145

However, the WEP modifies the formula for PIA by replacing the traditionalpercentage factor applicable to the first bracket of AIME - 90 percent - with apercentage factor of 40 percent for workers with earnings deriving from noncovered

146employment. Thus, the WEP decreases the replacement rate for the first bracketof AIME - the ratio between PIA and AIME - for such workers. For individualsattaining early retirement age between 1986 and 1990, the WEP phased-in bydecreasing the traditional 90 percent rate applicable to the first bracket of AIME by10 percentage points per year over the 5-year phase-in period. 14 Additionally, the

137. 42 U.S.C. § 415(a)(7)(A)(i), (ii) (2006).138. 42 U.S.C. § 415(A)(7)(E).139. 42 U.S.C. § 415(a)(7)(A)(ii).140. Id.141. 42 U.S.C. § 415(a)(7)(D).142. 42 U.S.C. § 415(a)(1)(C)(ii), (a)(7)(D); Cost-of-Living Increase and Other Determinations for 2013,

77 Fed. Reg. 65,754 (Oct. 30, 2012); Cost-of-Living Increase and Other Determinations for 2012, 76 Fed.Reg. 66,111, 66,115 (Oct. 25, 2011) (setting forth the contribution and benefits base amounts for 2012 as$81,900 and substantial earnings as $20,475).

143. Cost-of-Living Increase and Other Determinations for 2013, 77 Fed. Reg. 65,754 (Oct. 30, 2012).144. 42 U.S.C. § 402 (2006).145. 42 U.S.C. § 415(a)(7)(A)(ii), (a)(7)(B)(i), (a)(7)(D).146. 42 U.S.C. § 415(a)(7)(B)(i).147. 42 U.S.C. § 415(a)(7)(B)(ii)(I)-(IV).

198 [Vol. 39:2


WEP contains a second formulal48 that is applicable in certain circumstance toprotect low-income workers.149 Congress included the second formula as aguarantee that the reduction in a worker's Social Security benefits due toapplication of the WEP will not exceed one-half of the value of a worker'snoncovered pension.so The second formula instructs the SSA to calculate PIA for aworker with noncovered employment using the traditional percentage factors, but tosubtract one-half the value of the worker's noncovered pension from PIA. ' Thegreater of the amounts derived from the first and second formulas becomes theworker's PIA.15 When an individual has an employment record with between 21and 29 years of substantial earnings in Social Security covered employment, theWEP is not fully applicable."' For such individuals, the WEP applies thepercentage factor of 40 percent to the first bracket of AIME; however, eachadditional year of substantial earnings in Social Security covered employmentabove 20 years increases the applicable percentage factor by five percentagepoints.15 4 Thus, for such workers, the percentage factors applicable to the firstbracket of AIME range from 45 percent for 21 years of substantial earnings inSocial Security covered employment, to 85 percent for 29 years.

As a demonstration of the WEP's application to individuals with both SocialSecurity covered employment and noncovered employment, consider again theexample of the high-income worker, average-income worker, and low-incomeworker. As in the previous examples, the workers received average indexed annualearnings of $98,388, $45,000, and $9,000 respectively; however, each worker heldSocial Security covered employment for 15 years and noncovered employment for20 years. Since AIME is based on the worker's average earnings over 35 years (420months), including a zero value for calendar years without substantial earnings inSocial Security covered employment, the AIME for each worker is $3,513.90,$1,607.10, and $321.40 respectively (the same result as in the second example). 55

Accordingly, the PIA of the high-income worker is $1,185.8 (($767 *.4) +(($3,513.90 - $767) * .32),"s' resulting in a replacement rate of 34 percent. Note thatapplication of the WEP has reduced the replacement rate for the worker withnoncovered employment from 45 percent to 34 percent; however, the high-incomeworker still receives a replacement rate four percent greater than his counterpartwith 35 years of Social Security covered employment. 1 Similarly, the averageincome worker receives a PIA of $575.60 (($767 *.4) + (($1,607.10 - $767) *

148. Id.149. ALLISON M. SHELTON, CONG. RESEARCH SERVICE., 98-35, SOCIAL SECURITY: THE WINDFALL

ELIMINATION PROVISION (WEP) (2010); S. Rep. No. 98-23, at p. 15 (1983).150. H.R. CONF. REP. NO. 98-47, at 120-121 (1983).151. 42 U.SC. § 415(a)(7)(B)(i).152. 42 U.S.C. § 415(a)(7)(B)(i).153. 42 U.S.C. § 415(a)(7)(D).154. Id.

155. See Discussion supra Parts 2.C: The Social Security Benefits Formula, 2.D: Effect of NoncoveredEmployment under the Social Security Benefits Formula.

156. 42 U.S.C. § 415(a)(1)(A), (a)(7)(B)(ii)(V).157. See Discussion supra Parts 2.C: The Social Security Benefits Formula, 2.D: Effect of Noncovered

Employment under the Social Security Benefits Formula.

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.32) or a replacement rate of 36 percent. Here, the WEP has reduced the benefitreplacement rate for the average-income worker with both covered and noncoveredemployment from 62 to 36 percent, but the worker now receives a replacement ratethat is eight percent lower than his counterpart with 35 years of Social Securitycovered employment.! Finally, the low-income worker's PIA is $128.60 ($321.40* .4),160 which is equal to a replacement rate of 40 percent. As the low-incomeworker's AIME falls entirely within the bracket to which the first percentage factor(90 percent) traditionally applies, application of the WEP has decreased thereplacement rate that the Social Security benefits formula traditionally affords thelow-income worker by 50 percent.

AIME (worker PIA under Rep. AIME PIA Rep. PIA (with Rep. Ratewith identical Social Rate (based (without Rate the WEPearns Security only on the WEP)stemming only Benefits coveredfrom 35 years Formula earnings)of coveredemployment)

High- $8,199 $2,460.70 30% $3,513.90 $1,569.30 45% $1,185.80 34%IncomeWorker

Average- $3,750 $1,644.80 44% $1,607.10 $989.10 62% $4,575.60 36%Income

Worker

Low- $750 $675 90% $321.40 $289.30 90% $128.60 40%IncomeWorker

As noted above, two components of the WEP can mitigate its affects for thesehypothetical workers: (1) the guarantee of a maximum reduction equal to one-halfthe value of a worker's non-covered pensionl62 and (2) a greater applicablepercentage factor to the first bracket of AIME for 21-29 years of Social Securitycovered employment. 16 First, the maximum possible benefit reduction for a workerattaining early retirement age in 2012, regardless of income, is $383.50 ($4,602annually).'" This limitation on the benefit reduction arises because the WEP onlyadjusts the percentage factor applicable to the first bracket of AIME (reduction ofthe replacement rate for the first $767 of AIME from 90 percent to 40 percent).As the reduction in benefits due to the WEP cannot exceed one-half the value of anoncovered pension, the WEP will not be fully applicable to any worker, regardless

158. 42 U.S.C. § 415(a)(1)(A), (a)(7)(B)(ii)(V).159. See Discussion supra Parts 2.C: The Social Security Benefits Formula, 2.D: Effect of Noncovered

Employment under the Social Security Benefits Formula.160. 42 U.S.C. § 415(a)(1)(A), (a)(7)(B)(ii)(V).161. See Discussion supra Part 2.C: The Social Security Benefits Formula.

162. 42 U.S.C. § 414(a)(7)(B)(i).163. 42 U.S.C. § 415(a)(7)(D).164. 42 U.S.C. § 415(a)(1)(A), (a)(l)(B)(i), (a)(7)(B)(ii)(V).165. Id.

[Vol. 39:2200


of income, who receives a government pension of less than $767 ($383.50 * 2) permonth. In the previous examples, the low-income worker received a PIA of $690.30before application of the WEP, but a PIA of $306.80 after application of the WEP -a reduction of $383.50 ($690.30 - $306.80). If the low-income worker, for example,is concurrently entitled to receive a noncovered pension of $500 per month, byoperation of the guarantee, the WEP can only reduce his PIA to $440.30 ($690.3 -($500 / 2)) because application of the reduced percentage factor to the first bracketof AIME results in a benefit reduction greater than one-half of the noncoveredpension.

Second, the WEP reduces the percentage factor applicable to the first bracket ofAIME from 90 percent to 40 percent; however, if a worker has an employmentrecord consisting of 21-29 years of substantial earnings in Social Security coveredemployment, the applicable percentage factor increases by five percentage pointsper year of additional employment.16 If the average-income worker from theprevious example worked for 25 years in Social Security covered employment(rather than 20 years), his PIA under the WEP would increase from $575.60 (($767*.4) + (($1,607.10 - $767) * .32) to $767.4 (($767 *.65) + (($1,607.10 - $767) *

.32). Similar results occur for the low-income and high-income workers.

H. WEP Applicability

According to the Government Accountability Office, in 2007 the SocialSecurity system covered approximately 96 percent of the American workforce; theremaining four percent of noncovered workers were predominately publicemployees." While noncovered workers comprised a relatively small percentage ofthe American workforce, these workers accounted for 25 percent of publicemployees, and were disproportionately concentrated in state and localgovernments (approximately 90 percent of noncovered workers).169 Recently, SSAdata, released in 2005, indicates that there were approximately 6.8 millionnoncovered state and local government workers, and half a million noncoveredfederal government workers.170 States vary significantly in the extent to whichgovernments have elected Social Security coverage for state and local employees.For example, nearly all state and local government employees receive SocialSecurity coverage in New York and Vermont; by contrast, less than 5 percent ofstate and local government employees pay into the Social Security system inMassachusetts and Ohio. 172 Moreover, 70 percent of noncovered state and localgovernment employees are concentrated in only seven states - California,Colorado, Illinois, Louisiana, Massachusetts, Ohio, and Texas.m17 In 2009, the SSA

166. 42 U.S.C. § 415((a)(7)(D).

167. Id.168. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 1.169. Id. at 1, 3.170. Id.171. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 4.172. Id.173. Id.

2012-13] 201


provided the Congressional Research Service with data on the number ofbeneficiaries for whom the WEP reduced benefits; at the time, 1,197,020 SocialSecurity beneficiaries received reduced benefits by operation of the WEP (includingretired and disabled workers, as well as dependents).174 In general, the WEP affectsmale retirees and disabled workers disproportionately; approximately 65 percent ofWEP affected beneficiaries were male in 2006.1' At the time, eight states -California, Florida, Illinois, Maryland, Massachusetts, Ohio, Texas, and Virginia,accounted for 50 percent of WEP affected beneficiaries. If one considers WEPaffected beneficiaries as a percentage of total Social Security recipients within astate, then Alaska, Colorado, Maine, Maryland, Nevada, and Ohio are the statesmost affected by the provision, with the ratio ranging from a low of 4.7 in Nevadato a high of 10.6 percent in Alaska. 77

III. WEP: THE PROBLEMS

Reducing Social Security benefits for over one million retired federal, state,and local government employees 7

1 the WEP is an extremely controversialcomponent of the Social Security Act. The WEP has elicited a variety of criticismsfrom scholars and opponents, including: (1) the WEP has a disproportionate impacton low-income workers relative to high-income workers, 1 (2) the SSA hasinsufficient information to apply the provision to all of the targeted beneficiaries,"and (3) SSA efforts to communicate with the public about the provision areinsufficient, resulting in public misperception and resentment, as well assignificant hardship where workers mistakenly fail to account for the provision'seffects.'

A. Disproportionate Impact

Among criticisms of the WEP, the charge that the WEP disproportionatelyaffects low-income workers appears frequently in scholarly literature.' Asstructured, the WEP operates to the disadvantage of low-income workers in threeways: (1) under the WEP, the adjustment to Social Security benefits based on


ELIMINATION PROVISION (WEP) 4-5 (2010).175. Barbara A. Lingg, Social Security Beneficiaries Affected by the Windfall Elimination Provision in

2006, 68 Soc. SECURITY BULL. 1, 3 (2008).

176. Id.

177. Lingg, supra note 170, at 10-11.178. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 4.179. Brown & Weisbenner, supra note 21, at 8-13.

U.S. GOv'T ACCOUNTABILITY OFFICE, supra note 17, at 4-7 (2007).181. . Brown & Weisbenner, supra note 21, atl9; ALLISON M. SHELTON, CONG. RESEARCH SERV., 98-35,

SOCIAL SECURITY: THE WINDFALL ELIMINATION PROVISION (WEP) 19 (2010).

182. Id. at 6.

183. . Brown & Weisbenner, supra note 21, at 8-13 (performing an analysis similar to the proceedingsections); Francine Lipman, Social Security Benefits 101, 53 ORANGE COUNTY LAW. 30, 32-33 (2011);

ALLISON M. SHELTON, CONG. RESEARCH SERV., 98-35, SOCIAL SECURITY: THE WINDFALL ELIMINATIONPROVISION (WEP) 6 (2010).

202 [Vol. 39:2


noncovered employment is highly regressive;184 (2) high-income workers are morelikely to cross the WEP's substantial earnings threshold, thereby becoming eligiblefor a significant increase in benefits;"' and (3) the WEP affords high-incomeworkers a replacement rate above the rate they would be statutorily entitled to underthe general formula of the Social Security system while penalizing low-incomeworkers with a lower replacement rate.186 This Part of the Article examines eachpoint in turn.

1. The WEP's Regressive Nature

Having recognized that high-income workers with significant periods ofnoncovered employment received 'windfall' benefits under the traditional formulaby operation of the averaging provision, Congress enacted the WEP to preservethe progressivity of the Social Security benefits formula. NotwithstandingCongress' effort to preserve the formula's progressivity, the WEP itself isregressive, and does not effectively attain Congress' goal.

Although the WEP provides for a uniform reduction, regardless of income, inthe percentage factor applicable to the first bracket of AIME,' the reduction has a

disproportionate impact on low-income workers.19 The disproportionate impactexperienced by low-income workers with noncovered employment stems directlyfrom the design of the WEP.190 As the WEP is only applicable to the first bracket ofAIME,191 the benefit reduction gradually increases as earnings increase within thefirst bracket of AIME, reaching the maximum WEP reduction at the first bendpoint($767 in 2012).192 Consequently, the WEP imposes a maximum benefit reduction of383.50193 monthly in 2012 ($4,602 annually) on all workers with 20 or fewer yearsof Social Security covered employment and AIME at or above the first bendpoint.

While the benefit reduction is constant at or above an AIME of $767, as aworker's AIME increases, the reduction in benefits decreases as a percentage ofAIME. For example, a worker with AIME of $767 receives a 50 percent benefitreduction ($383.50 / $767) through operation of the WEP, while a worker with an

194AIME representing maximum taxable earnings through 2012 ($8,199) receivesless than a five percent benefit reduction ($383.50 / $8,199).195 Demonstrating theregressive nature of the WEP reduction, Figure 1 plots the replacement rate (theratio of AIME to PIA) over varying levels of income for two workers retiring at full

184. . See Discussion infra Part 3.A.I: The WEP's Regressive Nature.

185. . See Discussion infra Part 3.A.II: Disproportionate Affect of the Substantial Earnings Test.

186. . See Discussion infra Part 3.A.III: Comparison with a Proportional WEP.

187. H.R. CONF. REP. NO. 98-47, at 120 (1983).188. 42 U.S.C § 415(a)(7)(B)(ii)(V) (2006).189. Brown & Weisbenner, supra note 21, at 8.190. Francine Lipman, Social Security Benefits 101, 53 ORANGE COUNTY LAW. 30, 32 (2011).

191. 42 U.S.C § 415(a)(7)(B)(i).192. 42 U.S.C § 415(a)(1)(B)(i), (ii); Cost-of-Living Increase and Other Determinations for 2012, 76 Fed.

Reg. 66,111, 66,115 (Oct. 25, 2011).193. ($767 * .9) - (S767 * .4) = $383.50.

194. http://www.ssa.gov/oact/COLA/Benefits.htrnl.195. 42 U.S.C. § 415(a)(1)(A), (a)(7)(B)(ii)(V).

2032012-13]


retirement age: (1) the line beginning at a replacement rate of 90 percent representsa worker who is exempt from the WEP because she received substantial earnings inSocial Security covered employment for 30 or more years; (2) the line originatingat a replacement rate of 40 percent represents a worker who is subject to the WEPbecause she worked in Social Security covered employment for 20 or feweryears.19 The difference between the two lines represents the WEP reduction, andthe reduction is significantly larger for low-income workers than for their high-income counterparts. Thus, in seeking to address 'windfall' benefits that accrue tohigh-income workers with significant periods of noncovered employment, Congressenacted a provision that imposes a proportionally larger benefit reduction on low-income workers. As such, the WEP neither replicates the replacement rates of theSocial Security benefits formula, nor tracks its progressivity.

PIA/ AIME with and without WEP

100

90 - PIA/ AIME- PIA / AIME with WEP

80

70

60-

50

40- -

30

20

10 --

0

Figure 1

2. Disproportionate Impact of the Substantial Earnings Test

Besides creating a regressive benefit reduction, the WEP disproportionatelyimpacts low-income workers by operation of its provision for phasing-in thereduced replacement rate, as the moderating effect of the provision is not equallyavailable to low-income workers. Recall that the WEP applies a reduced percentagefactor of 40 percent to the first bracket of AIME for individuals with 20 or feweryears of substantial earnings in Social Security covered employment.' Where anindividual receives between 21 and 29 years of substantial earnings in SocialSecurity covered employment, the WEP gradually implements the reduced

196. 42 U.S.C § 415(a)(7)(D).197. 42 U.S.C § 415(a)(7)(B)(i), (a)(7)(D).198. 42 U.S.C. § 415(a)(7)(D).


percentage factor.19 For such individuals, the WEP applies the reduced percentagefactor of 40 percent, but for each additional year above 20 years of substantialearnings in Social Security covered employment, the WEP increases the applicablepercentage factor by five percentage points.200 At 30 years of substantial earnings in

201Social Security covered employment, the WEP is fully phased-out. Thus, forpurposes of the phase-in provision, the critical question is whether a workerreceived substantial earnings in Social Security covered employment during a givenyear. In 2012, to qualify for a year of substantial earnings, a worker must receive$20,475 or more in Social Security covered employment."0

To illustrate the issue of access to the phase-in provision, consider theunrealistic, but illustrative example of a worker who chooses to split her earning

201potential equally between covered and noncovered employment. If such anindividual earns $40,950 or more in 2012, she will receive at least $20,475 in SocialSecurity covered employment thereby crossing the substantial earnings threshold.204By contrast, if the worker earns $30,000 in 2012, her earnings of $15,000 in SocialSecurity covered employment will be insufficient to satisfy the substantial earnings

201test. While the scenario of an individual electing to split her earning potentialequally between covered and noncovered employment is unrealistic, the exampledemonstrates that individuals with a higher earning potential are more likely tocross the substantial earnings threshold - a threshold which can turn on a singledollar of income.

For individuals to whom the phase-in provision potentially applies, the effect ofan additional year of substantial earnings in Social Security covered employmentcan be quite significant. Consider, for example, a hypothetical low-income workerwho meets the following criteria: the individual (1) has an AIME of $767; (2)reaches early retirement age in 2012; and (3) defers retirement until full retirementage. If the individual's employment record reflects 20 years of Social Securitycovered employment, her PIA will be $306.80 ($767 * .4).206 By contrast, anindividual whose employment record reflects an additional year of substantialearnings in Social Security covered employment will receive a PIA of $345.15

207($767 * .45). Thus, if one holds all other criteria constant, but permits the numberof years of covered employment to fluctuate, then each additional year ofsubstantial earnings in Social Security covered employment, above 20 years, resultsin an increase to PIA of $38.35 (or $460.20 annually).

199. Id.200. Id.

201. Id.202. 42 U.S.C. § 415(a)(1)(C)(ii), (a)(7)(D); Cost-of-Living Increase and Other Determinations for 2012,

76 Fed. Reg. 66,111, 66,115 (Oct. 25, 2011).203. Brown & Weisbenner, supra note 21, at 9.204. 42 U.S.C. § 415(a)(1)(C)(ii), (a)(7)(D); Cost-of-Living Increase and Other Determinations for 2012,

76 Fed. Reg. 66,111, 66,115 (Oct. 25, 2011).205. Id.206. 42 U.S.C. § 415(a)(1)(A), (a)(7)(D); Cost-of-Living Increase and Other Determinations for 2012, 76

Fed. Reg. 66,111, 66,115 (Oct. 25, 2011); 42 U.S.C. § 402 (2006).

207. Id.

2012-13] 205


Although raising a worker's PIA by $38.35 may not appear significant, theincrease to aggregate wage-indexed lifetime earnings that an individual wouldordinarily require to achieve a similar increase of her PIA underscores themagnitude of the WEP's phase-in provision. As the previous example placed theindividual's AIME at $767, the next additional dollar earned will fall within thesecond bracket of AIME - the bracket to which the replacement rate of 32 percentapplies.20 Where AIME falls within the second bracket, absent the phase-inprovision, an individual must earn an additional $50,316 (($38.35 / .32) * 420) inaggregate wage-indexed lifetime earnings to achieve an increase to her PIA of$38.35. 209 Even more striking, for a high-income worker - defined as a workerwhose AIME falls within the third bracket - to raise her PIA by $38.35, she wouldhave to earn additional aggregate wage-indexed lifetime earnings of $107,380(($38.35 / .15) * 420).210 Thus, the WEP's phase-in provision permits an individualto avoid significant contribution costs for the bargain price of an additional year ofsubstantial earnings ($20,475 in 2012).211 However, an additional year of substantialearnings in Social Security covered employment affords the high-income workermore than twice the savings in contribution costs as the low-income worker, yetgrants both workers the same increase to PIA. This highlights yet another exampleof the WEP's disproportionate impact, particularly where the high-income workeris already more likely to cross the phase-in provision's substantial earningsthreshold.

3. Comparison with a Proportional WEP

A final approach to understanding the disproportionate impact of the WEP onlow-income workers entails introducing a new concept - a proportional WEP,which represents an alternative to the present WEP. Seeking to preserve theprogressivity of the Social Security benefits formula, Congress enacted the WEP toeliminate the 'windfall' benefits that accrue to high-income workers withsignificant periods of noncovered employment.212 To accomplish this task, the WEPreduces the percentage factor ordinarily applicable to the first bracket of AIME to40 percent.213 The decision to adopt 40 percent as the applicable percentage factorunder the WEP was the product of Congressional bargaining - a compromisebetween the Senate and House proposed percentage factors of 32 and 60 percentrespectively.214 Not surprisingly, the WEP is an imprecise, and many would argue

208. 42 U.S.C. § 415(a)(1)(A); Cost-of-Living Increase and Other Determinations for 2012, 76 Fed. Reg.66,111, 66,115 (Oct. 25, 2011).

209. 42 U.S.C. § 515(a)(1)(A).210. Id.

211. 42 U.S.C. § 415(a)(1)(C)(ii), (a)(7)(D); Cost-of-Living Increase and Other Determinations for 2012,76 Fed. Reg. 66,111, 66,115 (Oct. 25, 2011).

212. . H.R. CONF. REP. No. 98-47, at 120-121 (1983).213. .42 U.S.C. § 415(a)(7)(B)(ii)(V).214. . H.R. REP. No. 98-25, at Part I, Section 11 (1983); S REP. No. 98-23, at 15-16 (1983); H.R. CONF.

REP. No.98-47, at 120-121 (1983).

206 [Vol. 39:2


arbitrary215 provision, that as illustrated in Figure 1, neither tracks the replacementrates of the Social Security benefits formula, nor tracks its progressivity.216 GivenCongress' purpose in enacting the WEP, the most equitable approach to the'windfall' benefits problem would entail downward adjusting PIA for workers withsignificant periods of noncovered employment, such that the replacement ratesobtained by affected workers would be identical to that of workers with identicalannual incomes earned over 35 years of covered employment. A proportional WEPwould accomplish exactly this task.

Scott Weisbenner and Jeffrey Brown, in a paper entitled The DistributionalEffects of the Social Security Windfall Elimination Provision, analyzed one exampleof a proportional WEP.217 The authors suggested calculating AIME based on both aworker's covered and noncovered earnings.21 Next, to derive PIA, one would applythe Social Security benefits formula, without the WEP, to the worker's AIME.2 19 Assuch, the worker with noncovered employment will receive the exact samereplacement rate as a worker with identical earnings who only held Social Securitycovered employment.220 To account for the years during which the worker did notcontribute to the Social Security system, the proportional WEP would decrease PIAby multiplying the ratio of the worker's covered to total earnings.22 The resulting

figure represents the worker's "covered PIA."222 Imagine, for example two workerseach earning $90,000 per year; however, Worker A held Social Security coveredemployment for 35 years, while Worker B held covered employment for 20 yearsand noncovered employment for 15 years. Under the proportional WEP, bothworkers have the same AIME - $7,500 (($90,000 *35)) / 420).223 Similarly, bothworker's' initially have a PIA of $2,355.90 (.9 * $767) + (.32 * ($4,624 - $767)) +

215. . ALLISON M. SHELTON, CONG. RESEARCH SERV., 98-35, SOCIAL SECURITY: THE WINDFALLELIMINATION PROVISION (WEP) 3 (2009).

216. . See infra Figure 1.217. . Brown & Weisbenner, supra note 21, at 5, 10-12. This method first appeared as part of the

NCCSR's recommendation for addressing the WEP. See Discussion, supra Part 2.E: Towards Enactment ofthe WEP. During markup sessions on the Social Security Amendments Act of 1983, the Subcommittee onSocial Security of the House Committee on Ways and Means considered the NCSSR's alternative approachesto addressing 'windfall' benefits, and concluded that including non-covered wages in the calculation forAIME would pose "insurmountable administrative problems." John A. Svahn & Mary Ross, Social SecurityAmendments of 1983: Legislative History and Summary of Provisions, 46 SOC. SECURITY BULL. 3, 10 (1983).Senator Hutchison and Representative Brady have introduced a bill that employs a similar mechanism duringevery Congress from 2004 to 2011. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221,111th Cong. (2009); S. 490, 111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong.(2007); H.R. 1714, 109th Cong. (2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455108th Cong. (2004); See infra, Legislative Action; This Article proposes a method of adjusting benefits forworkers who held both covered and noncovered employment that achieves a similar result, but through adifferent mechanism. See Discussion infra Part 6 Recommendation.

218. . Id.

219. . Id.

220. . Id.

221. . Id.

222. . Id.

223. .42 U.S.C. 415(b) (the calculation ignores 42 U.S.C. § 415(b)(1)(A) which considers years of SocialSecurity covered employment).

2072012-13]


(.15 * ($7,500 - $4,624)).224 As such, the proportional WEP provides both workerswith the exact same replacement rate based on identical earnings - 31 percent(($2,355.90 / $7,500) * 100). However, the proportional WEP multiplies WorkerB's PIA by the ratio of covered to total earnings to account for the worker's time innoncovered employment, resulting in a covered PIA of $1,009.60 ($2,355.90 *($1,350,000 / $3,150,000)).225

By comparing the replacement rates for a high-income, average-income, andlow-income worker under a proportional WEP and the current law WEP, one candiscern a final manner in which the WEP disproportionately affects low-incomeworkers. For example, consider Figure 2, which charts the replacement rates overvarying periods of Social Security covered employment for two high-incomeworkers, each of whom earned $98,388 annually. The bold horizontal line at 30percent represents the replacement rate that the high-income worker would obtainunder a proportional WEP. The line originating at 30 percent and terminating near35 percent represents the replacement rates that a worker with identical incomewould obtain under the current law WEP based on different combinations ofcovered and uncovered employment. Note that the only point that the high-incomeworker receives the proper replacement rate under the current law WEP is whereshe works in Social Security covered employment for 35 years. Any othercombination of covered and noncovered employment under the current law WEPresults in a replacement rate for a high-income worker above the statutorilyintended replacement rate. Note also that under the current law WEP, as the numberof years the worker held Social Security covered employment increases, thedisparity between replacement rates under the proportional WEP and current lawWEP decreases.

Figure 2

224. 42 U.S.C. 415(a)(7)(A).225. Brown & Weisbenner, supra note 21, at 5, 10-12.

High-Income Worker: Replacement Rates by Years of Substantial Earnings

-Hgh-Income Worer: Current Law WEP

-H-ncorn Woer: ProportonIWEP

35 34 33 2 31 30 29 2 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10

Yas of Substantial Earnings

208 [Vol. 39:2


By contrast, Figure 3 charts the replacement rates, over varying periods ofSocial Security covered employment, for two average-income workers each earning$50,000 annually. The horizontal line at 43 percent represents the replacement ratethat an average-income worker subject to a proportional WEP would receive,regardless of the number of years during which the worker held Social Securitycovered employment. The line originating at 43 percent and terminating at 37percent represents the replacement rates that an average-income worker subject tothe current law WEP would receive based on different combinations of covered andnoncovered employment. In this example, where the average-income workerreceived less than 20 years of substantial earnings in Social Security coveredemployment, her replacement rates are up to eight percent lower than thoseobtained by her counterpart who is subject to the proportional WEP. When theaverage-income worker has sufficient earnings to cross the substantial earningsthreshold, the replacement rates begin to approach, and eventually surpass, thoseobtained by the worker's counterpart who is subject to the proportional WEP.Finally, at 31 years of substantial earnings in Social Security covered employment,the replacement rates obtained by the average-income worker begin to decreaseuntil reaching a replacement rate identical to a worker who held Social Securitycovered employment for 35 years.

Average-income Worker: Replacement Rates by Years of Substantial Earnings

50

45 - - --

40-

35

30

-Arage-ncome Worker Current Law WEP

2 - Aralge-ncome Worker Proposionl WEP

S20

15

10

5

035 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10

Years of Substantial Earnings

Figure 3

Finally, Figure 4 compares the replacement rates obtained by two low-incomeworkers, each of whom earned $20,000 annually, for different combinations ofcovered and noncovered employment. The horizontal line at 59 percent representsthe replacement rate that the low-income worker would obtain under a proportionalWEP. By contrast, the line originating at 36 percent and terminating at 40 percentrepresents the replacement rates the worker would obtain under the current law

2092012-13]1


WEP. Note that any combination of covered and noncovered employment underthe current law WEP results in a replacement rate for a low-income worker belowthe statutorily intended replacement rate. In fact, even where the low-incomeworker who held both covered and noncovered employment has an employmentrecord reflecting 35 years of Social Security covered employment, her replacementrate falls below that of an identical worker who only held covered employment.This anomaly occurs because the low-income worker's annual earnings nevercrossed the WEP's substantial earnings threshold - $20,475 in 2012.22 Thus,although the worker's qualification for a noncovered pension subjects him to theWEP,227 the worker can never qualify for the mitigating effects of the WEP's phase-in provision.

Low-Income Worker: Replacement Rates by Years of Substantial Earnings

70

0

-Lw-Income Wolrke Current Law WEP- Lw-icome Worker Proportional WEP

20

10

35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10

Yearsof Substantial Earnings

Figure 4

The foregoing examples demonstrate that under the current law WEP, a high-income worker will always obtain a replacement rate greater than the statutorilyintended replacement rate. By contrast, the replacement rate obtained by a low-income worker who does not cross the WEP's substantial earnings threshold willalways fall below those obtained by the worker's counterparts who only held SocialSecurity covered employment. This is yet another example of the WEP'sdisproportionate impact.

226. . 42 U.S.C. § 415(a)(1)(C)(ii), (a)(7)(D) (2006); Cost-of-Living Increase and Other Determinationsfor 2012, 76 Fed. Reg. 66,111, 66,115 (Oct. 25, 2011).

227. . 42 U.S.C. § 415(a)(7)(A), (a)(7)(D).

210 [Vol. 39:2


B. The SSA Has Insufficient Information to Apply the WEP to All of the TargetedBeneficiaries

As previously noted, the WEP is potentially applicable to individuals attainingearly retirement age - 62 years of age - after 1985, who also become eligible, after1985, for a government pension, based in whole or in part, upon noncoveredemployment. 228 Thus, effective administration of the WEP requires the SSA todetermine which beneficiaries are, or potentially will be, eligible to receivegovernment pensions based upon noncovered employment.229 Historically, the SSArelied on a system of self-reporting to determine whether beneficiaries were eligiblefor noncovered government pensions.230 When reviewing an initial benefitsapplication, SSA staff examined an applicant's earnings record to determine

211whether there were significant gaps in the individual's employment history.When SSA staff identified such a gap in the applicant's employment record, a staffmember was required to determine whether the gap was attributable to noncovered

232employment. Additionally, SSA staff asked the applicant whether she waseligible, or will become eligible, to receive a government pension based uponnoncovered employment.233 If an applicant answered in the affirmative, the SSAwould make the appropriate benefit reduction for applicants already receiving anoncovered pension, or, for applicants with future eligibility, would make a note inthe applicant's file for later action.23 If an applicant indicated that she was not, andwould not become, eligible for a noncovered government pension, "SSA staffrecord[ed] and accept[ed] [her] answer unless the staff believe[d] furtherinvestigation [wa]s warranted."235

For federal retirees, the SSA employed an additional level of verification."' Ona monthly basis, the SSA received data listing federal retirees and the amount oftheir noncovered pensions from the Office of Personnel Management, the agencycharged with administering the Civil Service Retirement System.23 Upon anindividual's initial application for benefits, the SSA cross-referenced the applicant'srecord with the data received from the Office of Personnel Management. 238 Wherethe cross-referencing procedure provided evidence that an applicant was receiving anoncovered federal pension, the SSA noted the pension in the applicant's earningsrecord, thereby ensuring compliance with the WEP.23

228. 42 U.S.C. § 415(a)(7)(A)(i), (ii).229. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 6 (2007).

230. U.S. Gov'T ACCOUNTABILITY OFFICE, GAO/HEHS-98-76, SOCIAL SECURITY: BETTER PAYMENTCONTROLS FOR BENEFIT REDUCTION PROVISIONS COULD SAVE MILLIONS 4-5 (1998).

231. Id. at 4.232. Id.233. Id.234. Id. at 5.235. Id.236. Id.237. Id.238. Id.239. Id.

2012-13] 211


The SSA expressed concern during the 1990s that its procedures foradministering the WEP required strengthening because it was using a self-reportingsystem that lacked an independent source to verify the accuracy of information

240applicants provided regarding noncovered pensions. In this context, the HouseSubcommittee on Social Security instructed the U.S. General Accounting Office toundertake an examination of the SSA's efforts to administer the WEP, resulting in a1998 report entitled Social Security: Better Payment Controls for Benefit ReductionProvisions Could Save Millions.2 4' Based on a study of 36,000 cases for which theSSA suspected WEP related overpayments to federal retirees, the GeneralAccounting Office report determined that the SSA erroneously failed to apply theWEP to approximately 7,130 federal retirees, resulting in total overpayments ofapproximately $32 million.24 Employing the study of federal retirees to determinethe amount of WEP related overpayments to state and local government retirees, theGeneral Accounting Office report determined that the SSA erroneously failed toapply the WEP to between 4,334 and 10,835 state and local government retirees atan estimated cost of between $19.5 million and $48.8 million.2 43

Given the large number of beneficiaries to whom the WEP should apply thatthe SSA failed to detect, the General Accounting Office proposed two methods tostrengthen procedures for administering the WEP.244 The General AccountingOffice suggested that the SSA expand its effort to verify the accuracy ofinformation reported by federal retirees by periodically cross-referencingbeneficiary records with the Office of Personnel Management data, rather thanlimiting this procedure to the initial application period.24 The General AccountingOffice indicated that the "postentitlement match" procedure would be "relativelystraightforward" as the SSA already receives the necessary data from the Office ofPersonnel Management.246 Moreover, SSA staff had already acknowledged that theprocedure was effective for detecting federal retirees who first applied for SocialSecurity benefits, and later became eligible for a noncovered pension, but failed tonotify the SSA.247

Alternatively, the General Accounting Office proposed that the SSA employ anindependent source to verify the accuracy of information regarding noncoveredpensions provided by state and local government retirees.248 As part of its proposal,the General Accounting Office identified two alternative sources of independentverification: (1) the individual retirement systems providing noncovered pensions

240. U.S. GOV'T ACCOUNTABILITY OFFICE, GAO/HEHS-98-76, SOCIAL SECURITY: BETTER PAYMENTCONTROLS FOR BENEFIT REDUCTION PROVISIONS COULD SAVE MILLIONS 3,16 (1998).

241. Id. at 1.242. Id. at 11.243. Id. at 12-13.244. U.S. Gov'T ACCOUNTABILITY OFFICE, GAO/HEHS-98-76, SOCIAL SECURITY: BETTER PAYMENT

CONTROLS FOR BENEFIT REDUCTION PROVISIONS COULD SAVE MILLIONS 13 (1998).245. Id. at 13.246. Id. at 5, 13, 16.247. Id. at 5.248. Id. at 13.

[Vol. 39:2212


and (2) the Internal Revenue Service (IRS).249 According to the General AccountingOffice, obtaining information on noncovered pensions directly through theindividual retirement systems offered the advantage of timeliness, as the individualretirement systems possessed the most up to date information regarding theirbeneficiaries. 250 However, obtaining the information directly through the individualretirement systems posed significant administrative challenges, according to theGeneral Accounting Office, as there were thousands of retirement systems, some ofwhich state law precluded from disclosing beneficiary information.251 Moreover, allof the retirement systems would have to develop a reporting mechanism to provide

252the SSA with pertinent information.

Instead, the General Accounting Office advocated obtaining the necessaryinformation regarding noncovered pensions for state and local government retireesfrom the IRS.25 At the time, the individual retirement systems reported payment ofpension benefits for each individual beneficiary annually to the IRS through Form1099R - Distributions from Pensions, Annuities, Retirement or Profit-Sharing

254Plans, IRAs, Insurance Contracts, etc.. By employing the IRS as a conduit for thepertinent information, the proposal offered the significant advantage of avoiding theadministrative difficulties associated with obtaining the same information directlyfrom the individual retirement systems. However, the proposal suffered from twodrawbacks.25 First, as independent retirement systems filed Form 1099Rs annually,the information would not have been as timely as that obtained directly through theindividual retirement systems.25 Additionally, Form 1099R required modificationto allow the SSA to distinguish noncovered pension payments from other categories

257of information reported on the form. Given the relative advantages anddisadvantages of each proposal, the General Accounting Office concluded thatobtaining the necessary information from the IRS would be "the most efficient andleast disruptive option" to improve administration of the WEP. In a letterresponding to the General Accounting Office report, Michael Dolan, the DeputyCommissioner of the IRS, indicated that the IRS concurred with the report'sproposal, and could implement changes to form 1099R's reporting requirements for

219the processing year 2000.

Responding to the General Accounting Office's report, the SSA implementedpostentitlement matching using data from the Office of Personnel Management toverify the accuracy of information which federal retirees report.26 According to the

249. Id.250. Id.251. Id. at 14.252. Id.253. Id.254. Id.255. Id. at 14-15.256. Id. at 13-14.257. Id. at 15.258. Id. at 16.259. Id. at 28.260. U.S. Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 5-6 (2007).

2012-13] 213


General Accounting Office, the postentitlement matching procedure has identifiedbeneficiaries for whom the SSA had failed to administer the WEP, and correctionof those errors will result in "hundreds of millions of dollars in savings."26

1 Whilethe SSA has implemented a measure to improve administration of the WEP forfederal retirees, the SSA to date has not developed an independent source to verify

262the accuracy of information provided by state and local government employees.Although the IRS initially indicated that it could implement changes to form

1099R to facilitate reporting of state and local retirees' noncovered pension to theSocial SSA, the IRS subsequently determined that it could not implement the

263procedure without a legislative mandate. In response, the U.S. GeneralAccountability Office issued reports in 2003, 2005, 2007, and 2011 urgingCongress to adopt legislation authorizing the IRS to gather needed information forthe effective administration of the WEP.264 To date, the only Congressionalresponse occurred when Congress was considering H.R. 743, the Social SecurityProtection Act of 2004.265 During markup sessions on the bill, the Senate FinanceCommittee added a provision to the bill that would have authorized the IRS to

266collect data on noncovered state and local government pensions. However,

Congress did not include this provision in the final version of the bill.26 The Officeof Management and Budget's Fiscal Year 2012 Budget of the U.S. Governmentincluded a legislative proposal that would dedicate $50 million to developing an"electronic mechanism" which would collect data from state and local governmentretirement systems regarding retirees receiving noncovered pensions." The Officeof Management and Budget estimated that the legislative proposal, if enacted,would have saved approximately $3.3 billion over ten years by improving theSSA's ability to administer the WEP.269

An internal audit conducted by the SSA's Office of the Inspector General in2011 determined that the SSA overpaid approximately 24,900 beneficiariesapproximately $623.8 million through April 2011 due to failure to administer theWEP and Government Pension Offset (GPO) properly.270 While the audit included

261. Id. at 6.262. U.S. Gov'T ACCOUNTABILITY OFFICE, GAO-I 1-318SP, OPPORTUNITIES To REDUCE POTENTIAL

DUPLICATION IN GOVERNMENT PROGRAMS, SAVE TAX DOLLARS, AND ENHANCE REVENUE 327 (2011).263. U.S. GOV'T ACCOUNTABILITY OFFICE, supra note 17, at 6 (2003).264. U.S GOV'T ACCOUNTABILITY OFFICE, GAO-03-710T, Social Security: Issues Relating to

Noncoverage of Public Employees 9 (2003); U.S. GOV'T ACCOUNTABILITY OFFICE, GAO-05-786T, SOCIALSECURITY: COVERAGE OF PUBLIC EMPLOYEES AND IMPLICATIONS FOR REFORM 9 (2005); U.S. GOv'T

ACCOUNTABILITY OFFICE, supra note 17, at 10; U.S GOV'T ACCOUNTABILITY OFFICE, GAO- ll-318SP,OPPORTUNITIES TO REDUCE POTENTIAL DUPLICATION IN GOVERNMENT PROGRAMS, SAVE TAX DOLLARS,

AND ENHANCE REVENUE 328 (2011).

265. H.R. 743, 108th Cong. (2003).266. S. REP. No. 108-176, at 21 (2003).267. Social Security Protection Act of 2004, Pub. L. No. 108-203, 118 Stat. 493.

268. OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, FISCAL YEAR 2012 BUDGET OF THE

U.S. GOVERNMENT: TERMINATIONS, REDUCTIONS, AND SAVINGS (2012).

269. Id. (noting that the total also includes savings from preventing GPO related overpayments).

270. SOCIAL SECURITY ADMINISTRATION, OFFICE OF THE INSPECTOR GENERAL, A-13-10-10143, AUDIT

REPORT: OLD-AGE, SURVIVORS AND DISABILITY INSURANCE BENEFITS AFFECTED BY STATE OR LOCAL

GOVERNMENT PENSIONS at 6 (2011).

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data for both the WEP and the GPO, one can extrapolate the proportion of WEPrelated overpayments from an earlier SSA report, which concluded thatapproximately 62 percent of the overpaid dollars from 2005 through 2009 wereWEP related. 27

1' These overpayments occur because the SSA lacks sufficientinformation regarding beneficiaries receiving noncovered state and localgovernment pensions to administer the WEP effectively and fairly.27 2 Any SocialSecurity overpayment due to the failure to apply the WEP is patently unfair to twocategories of beneficiaries: (1) beneficiaries who held Social Security coveredemployment for 35 years and receive Social Security benefits pursuant to thestatutorily intended progressive benefit formula and (2) beneficiaries who receivenoncovered government pensions to whom the SSA applies the WEP. However,because the SSA implemented a mechanism to improve WEP application in relationto federal employees without implementing a similar mechanism to address stateand local employees, a disparity presently exists in the degree to which the SSA

273enforces the WEP against federal retirees, as compared to state and local retirees.This disparity in application represents "yet another source of unfairness in thecalculation of Social Security benefits for public employees."27 4

C. Public Misperception and Resentment: SSA Efforts to Educate the Public

Beyond structural issues and the administrative challenges of enforcing theWEP, the provision imposes a significant public relations problem. Congressionaltestimony of those affected by the WEP demonstrates that public misperception andresentment of the WEP is pervasive.27 Moreover, examples of hardship arisingfrom retirees' failure to account for the provision in their retirement plans appearfrequently.27 However, the problem is not merely one of public resentment towardsthe government. As evidenced by the personal accounts of hardship, the underlyingissue is the quality of retirement that society seeks to ensure for the elderly. In2010, Social Security benefits lifted approximately 14 million retirees above thepoverty line.27 Retirees increasingly rely on Social Security benefits for a greaterpercentage of their post-retirement incomes, yet many workers approachingretirement are unfamiliar with the mechanics of the Social Security benefitsformula.27 Too often, the result is personal hardship at a time when retirees areleast able to redress the situation.279 To humanize the issue, this Part begins byproviding examples of the personal hardship suffered by retirees who failed toaccount for the WEP in their retirement plans. Next, this Part examines issues of

271. Id. at B-2.272. U.S. GOV'T ACCOUNTABILITY OFFICE, supra note 17, at 6 (2007).

273. Id.274. Id.

275. .See, Hearing: Penalty for Public Service, supra note 42; Hearing Before Subcomm. On Soc. Sec.,Pensions, and Family Planning, supra note 1.

276. . ALLISON M. SHELTON, CONG. RESEARCH SERVICE., 98-35, SOCIAL SECURITY: THE WINDFALLELIMINATION PROVISION (WEP). (2009).

277. . Lipman & Williamson, supra note 39, at 30.278. . Id.

279. . Id.

2012-13] 215


public misperception and resentment, seeking to dispel the underlyingcontroversies. Finally, this Part explores the methods through which the SSAattempts to communicate with the public regarding the WEP, identifying problemsin the SSA's framing of the WEP that may account for public misperceptions.

1. Accounts of Personal Hardship

Workers, lacking sufficient information about the WEP, often fail to accountfor the effects of the provision in their retirement plans.28 Tragically, the result isunanticipated hardship. In testimony before the Committee on GovernmentalAffairs in 2003 and the Subcommittee on Social Security, Pensions, and FamilyPolicy in 2007, Senators, private parties, and organizations representing publicsector employees frequently cited examples of the hardship to retirees stemmingfrom failure to account for the WEP.21 The stories of Julia Worchester and PaulMcLaughlin are representative of the problem.

Julia Worchester held Social Security covered employment for 20 years during28which time she worked as a waitress and in various positions at a factory.282

However, Julia dreamed of becoming a teacher, and at age 49, she enrolled in auniversity program in pursuit of her goal.283 Thereafter, Julia taught full-time for 15years, retiring at age 68.284 Approximately 4-5 years after beginning her teachingcareer, Julia learned that the WEP would be fully applicable to her because she onlyheld Social Security covered employment for 20 years, resulting in a PIA of$156. Worse yet for Julia, the 15 years during which she held a teaching positionwere insufficient to qualify her for a full pension under her state's retirementprogram.28 As a result, Julia received a combined monthly pension benefit of under$800 per month ($9,600 annually).28 At the time of the hearing before theSubcommittee on Social Security, Pensions, and Family Policy in 2007, Julia was

77 years old, and still working as a substitute teacher to make ends meet.28Similarly, Paul McLaughlin began his working years in Social Security coveredemployment by driving a taxicab and moving furniture during high school to earnmoney for college.289 After finishing college, Paul taught for 31 years in a state thatpermitted state and local government employees to pay into an alternative pensionprogram.290 However, during this period he also held part-time jobs in Social

280. ALLISON M. SHELTON, CONG. RESEARCH SERVICE, 98-35, SOCIAL SECURITY: THE WINDFALLELIMINATION PROVISION (WEP) (2009).

281. Hearing: Penalty for Public Service, supra note 42, atl9-20, 22, 72, 73, 76, 78, 81; Hearing BeforeSubcomm. On Soc. Sec., Pensions, and Family planning, supra note 1, at 5, 7, 11, 47-49, 121-129.

282. Hearing Before Subcomm. On Soc. Sec., Pensions, and Family planning, supra note 1, at 5.283. Id.

284. Id.285. Id.; Hearing: Penalty for Public Service, supra note 42, at 20.286. Id.287. Id.288. Id.

289. Hearing Before Subcomm. On Soc. Sec., Pensions, and Family planning, supra note 1, at 48.290. Id.

216 [Vol, 39:2


2911Security covered employment to supplement his income. Upon retiring in 2001,Paul was shocked to learn he would not receive the PIA of $421 for which he

292planned, but rather, a PIA of $187.10 due to application of the WEP. At 71 yearsof age, Paul was still working a part-time job at the time of the hearing before theSubcommittee on Social Security, Pensions, and Family Policy.293

In analyzing the structural problems of the WEP and administrative difficultiesinherent in enforcing the provision, it is easy for one to lose sight of the humanindignity of the problem. However, through recognition of the hardship that resultswhen a retiree mistakenly fails to account for the WEP, one can better understandthe public misperception and resentment surrounding the provision, as well as theimportance of the SSA's efforts to educate the public about the WEP.

2. Public Misperception and Resentment

The Social Security benefits formula is complex. Briefly stated, the formularequires the SSA to (1) wage-index a worker's annual earnings,294 (2) average theworker's 35 highest earning years to calculate AIME,295 and (3) derive PIA by

296applying a progressive formula to AIME. Complicating the entire process, theSSA must also wage-index a component of the progressive benefits formula - thebendpoints - before it can even apply the formula to derive a worker's PIA. 9' In astudy to determine how well individuals can calculate the benefits to which they areentitled, the Financial Literacy Center determined that one-quarter of participants inthe study overestimated benefits by more than 21 percent, and one-quarterunderestimated benefits by more than 22 percent.298 Given the complexity of theformula, the Financial Literacy Center study suggested: "few Americans would becapable of making these calculations even if they had a computer spreadsheet

,,299program. In this context, the WEP adds a layer of complexity to the entireprocess. The WEP requires a complex, involved calculation an understanding ofwhich requires thorough knowledge of the policy behind the Social Securitybenefits formula. Given the overall complexity of the Social Security benefitsformula and the WEP, public misperception and resentment of the provision are notsurprising.

291. Id.292. Id. at 49293. Id.294. 42 U.S.C. § 415(b)(3)(A) (2006).295. 42 U.S.C. § 415(b)(1), (b)(1)(A), (b)(2)(A)(i), (b)(2)(B)(i).296. 42 U.S.C. § 415(a)(1)(A).297. 42 U.S.C. § 415(a)(1)(B)(ii).298. Does the Social Security Statement Improve Americans' Knowledge of Their Retirement Benefits?,

FINANCIAL LITERACY CENTER, http://financial-literacy.rand.org (last visited Mar. 1, 2012).299. Id.

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a. The Myth of a Stolen Entitlement

Parsing Congressional testimony proffered both by Senators and individuals towhom the WEP applies, one can find numerous examples of misperceptions of theWEP and Social Security benefits policy in general.300 For example, during a 2003hearing before the Committee on Governmental Affairs, Senator Collins observed:"what is so frustrating to teachers and firefighters and police officers who have paidin personally into the system, worked for 10 years in the private sector, [is thatthey] earned their benefits and can't get the benefit.', 30 ' The same sentimentexpressed by a retiree during a hearing four years later before the Subcommittee on

302Social Security, Pensions, and Family Policy elicited applause from the audience.On one hand, this perception of an injustice is correct to the extent a fundamentaltenant of the Social Security system is that benefits are an "earned right."303

However, the magnitude of the entitlement depends on contributions to the Social304

Security system. Upon paying into the Social Security system for 40 quarters (10years), a worker becomes eligible to receive Social Security benefits.30 While theminimum criteria for eligibility is 40 quarters of sufficient earnings in coveredemployment," the Social Security benefits formula bases PIA on a worker'shighest 35 years of annual wage-indexed earnings.307 Moreover, the formulaactually considers 40 years30 during which both the worker (in Social Securitycovered employment) and her employer pay Federal Insurance Contribution Act(FICA) taxes (6.2 percent of earnings up to the employee's maximum taxableearnings for the OASDI program).309 Thus, the WEP does not seek to depriveaffected beneficiaries of an earned right, but rather, attempts to measure benefitsaccording to the amount of the entitlement earned.

b. The Myth ofDiscriminatory Treatment ofPublic Servants

Another frequent concern evidenced by Congressional testimony of individualsto whom the WEP applies is that the WEP discriminates against federal, state, andlocal government employees or penalizes workers for their decisions to pursue apublic sector career."o For example, Elbert Bade, a retired teacher explained:"Teaching's [sic] a great career and very satisfying but no one tells you they're

300. See, Hearing: Penalty for Public Service, supra note 42; Hearing Before Subcomm. On Soc. Sec.,Pensions, and Family planning, supra note 1.

301. Hearing: Penaltyfor Public Service, supra note 42, at 14.302. Hearing Before Subcomm. On Soc. Sec., Pensions, and Family planning, supra note 1, at 21.303. Hearing: Penalty for Public Service, supra note 42, at 13.304. Id.305. 42 U.S.C. § 414(a)(2) (2006); 42 U.S.C. § 413(a)(2)(A)(ii) (2006).306. Id.307. 42 U.S.C. § 415(b)(1)(A), (b)(2)(A)(i), (b)(2)(B)(i) (2006).308. 42 U.S.C. § 415(b)(1)(A).309. 26 U.S.C § 3 101(a) (2010); 26 U.S.C. § 3111(a) (2011).310. See, Hearing: Penalty for Public Service, supra note 42; Hearing Before Subcomm. On Soc. Sec.,

Pensions, and Family planning, supra note 1.

218 [Vol. 39:2


going to jerk your Social Security because you were a teacher.""' Similarly, JoanPiacquadio, a retired school nurse, observed: "Ordinarily people who don't work inthe public sector don't have any idea how public employees are treated. . . We aretreated like second-class citizens."3 12 In fact, the title for the hearing before theCommittee on Governmental Affairs itself questions, without answering, whetherthe WEP unfairly discriminates against employees and retirees.!13 Underlying theseviews are two concerns: (1) The WEP is discriminatory because it does not requirereduction of Social Security benefits for beneficiaries who receive privatepensions314 and (2) by penalizing public sector employees, who generally receivelow salaries, the WEP provides a disincentive to work in important fields such asteaching or law enforcement.3s

Whether the WEP is discriminatory or penalizes public sector employees arecomplex issues. For example, suggestions that the WEP imposes a penalty onpublic sector employees are fraught with the same misperceptions as arguments thatthe WEP deprives beneficiaries of an earned right. Congress enacted the WEP toaddress the 'windfall' benefits that accrue to workers with short careers in SocialSecurity covered employment.316 To the extent that the WEP adjusts a retiree'sbenefits to reflect contributions paid, the WEP does not actually impose a penalty,but rather, restores the progressivity of the Social Security benefits formula.However, the decision to reduce the percentage factor applicable to the first bracketof AIME from 90 percent to 40 percent was the product of Congressionalcompromise."' As the WEP represents an imprecise solution to a complex problem,the provision does have a disproportionate impact on low-income workers."' In thissense, one can view the WEP as imposing a penalty; for example, low-incomeworkers who held noncovered employment receive replacement rates below that oftheir counterparts with similar earnings who only held covered employment." 9

Similarly, the WEP does not discriminate on the basis of public sectoremployment. Rather, the WEP targets public sector employees who pay intoalternative government pension programs in lieu of contributing to the SocialSecurity system.320 As the Second Circuit observed, government employers providealternative retirement programs to substitute both for Social Security benefits andprivate pensions.321 Thus, the Second Circuit upheld application of the WEP to abeneficiary against an Equal Protection Clause challenge, finding that the provisionis rationally related to the legitimate government purpose of preventing 'windfall'

311. Hearing Before Subcomm. On Soc. Sec., Pensions, and Family planning, supra note 1, at 84.312. Id. at 49.313. Penalty for Public Service: Do the Social Security Government Pension Offset and Windfall

Elimination Provision Unfairly Discriminate Against Employees and Retirees?: Hearing Before the S. Comm.On Gov't Affairs, 108th Cong. (2003).

314. Hearing Before Subcomm. On Soc. Sec., Pensions, and Family planning, supra note 1, at 10.315. Hearing: Penalty for Public Service, supra note 42, at 4.316. See Discussion supra Part 2.E: Towards Enactment of the WEP.317. Id.318. See Discussion supra Part 3.A Disproportionate Impact.319. Id.320. 42 U.S.C. § 415(a)(7)(B)(ii).

321. Rudykoff v. Apfel, 193 F.3d 579, 581 (2nd Cir. 1999).

2012-13] 219


benefits from accruing to individuals with short careers in Social Security covered

employment.32 Nevertheless, given the previously discussed deficiencies of theWEP, one might argue that the provision is discriminatory for two reasons: (1) the

323provision has a disproportionate impact on low-income workers and (2) adisparity presently exists in the degree to which the SSA enforces the WEP against

324federal retirees, as compared to state and local retirees.

C. The Myth ofa Benefits Reduction

The public's impression that the WEP is discriminatory, imposes a penalty, anddeprives workers of an earned right suggests a final, and entirely too common,misperception - the notion that the WEP reduces a worker's benefits.325 Aspreviously discussed, the WEP attempts to adjust a worker's Social Securitybenefits to reflect the worker's contribution to the Social Security system.326 Assuch, the WEP does not reduce benefits, at least theoretically, but rather, preventsworkers with short careers in Social Security covered employment from receiving'windfall' benefits above their statutorily intended PIA.32 Of course, the WEP is animprecise mechanism, which affords low-income workers a replacement rate belowthat of their counterparts who only held Social Security covered employment,thereby resulting in a benefits reduction.

3. SSA Efforts to Communicate with the Public Regarding the WEP

Given the complexity of the Social Security benefits formula and the WEP, thehardship that arises when a retiree fails to account for the WEP's effects, and theissues of public misconception, one may wonder how the SSA approachesexplaining the provision to beneficiaries to whom the WEP applies. Onemechanism that the SSA employs to provide workers with information about theSocial Security benefits formula, as well as the WEP, is the Social SecurityStatement.329 On December 19, 1989, Congress enacted the Omnibus BudgetReconciliation Act of 1989, requiring the SSA to furnish upon request SocialSecurity Account Statements to eligible individuals, defined as Social Securityaccount number holders who have attained the age of 25.330 Moreover, the provisionrequired the SSA to furnish such a statement, automatically on a biennial basis, to

322. Id.323. See Discussion supra Part 3.A: Disproportionate Impact.324. See Discussion supra Part 3.B: The SSA Has Insufficient Information to Apply the WEP to All of the

Targeted Beneficiaries.325. See generally, Hearing: Penalty for Public Service, supra note 42; Hearing Before Subcomm. On

Soc. Sec., Pensions, and Family planning, supra note 1.326. See Discussion infra Part 2.E: Towards Enactment of the WEP.327. Id.328. See Discussion infra Part 3.A: Disproportionate Impact.

329. U.S Gov'T ACCOUNTABILITY OFFICE, GAO-I 1-787T, Social Security Statements: Observations onSSA's Plans for the Social Security Statement 1, 6 (2007); The Social Security Protection Act of 2004, PUBL.No. 108-203, 118 Stat. 493.

330. The Omnibus Budget Reconciliation Act of 1989, PUB L. No. 101-239, 103 Stat. 2106.

220 [Vol. 39:2


all eligible individuals for whom the SSA could determine a mailing address."' TheAct required the SSA to include basic information such as the eligible individual'sannual wages, contributions made, and an estimate of the individual's future PIA."'In calendar year 1995, pursuant to the Act, the SSA began mailing the SocialSecurity Statement to individuals who had attained age 60 by October 1, 1994."'Thereafter, the SSA phased-in increasingly younger cohorts furnishing the SocialSecurity Statement to all eligible individuals by October 1, 1999.334

During the phase-in period, the Social Security Advisory Board released areport in 1997, concluding that the public had an incomplete understanding of theSocial Security system, and that the public lacked sufficient knowledge of benefitsunder the system and the requirements for eligibility."' Moreover, the Reportdetermined that the SSA had a responsibility to help both workers and retireesunderstand how to provide for their economic security in retirement.' The SocialSecurity Advisory Board determined that the Social Security Statement must"receive the most careful, high level attention with respect to content and design"because the Statement would become the SSA's "most important means ofcommunicating with the public." 33 7 Responding to the Advisory Board's Report, theSSA shortened the length of the Social Security Statement and improved itsorganization and readability; however, a follow-up review in 2000 concluded thatthe Statement's explanation of benefits remained a concern.m The final step in theevolution of the Social Security Statement arrived on March 2, 2004, whenCongress enacted the Social Security Protection Act of 2004, which required theSSA to include in the statement, "an explanation, in language calculated to beunderstood by the average eligible individual, of the operation of the... [WEP]...and an explanation of the maximum potential effects of such provision[] on theeligible individual's. . . benefits." 9

Presently the Social Security Statement serves as the SSA's primary means ofconveying information to approximately 150 million workers regarding theirbenefits.340 Responding to the statutory mandate to provide an explanation that canbe understood by the average eligible individual, the Social Security Statementprovides the following explanation of the WEP:

331. Id.332. Id.333. U.S GOv'T ACCOUNTABILITY OFFICE, GAO-1 1-787T, Social Security Statements: Observations on

SSA's Plans for the Social Security Statement 1, 4 (2007); The Social Security Protection Act of 2004, PUBL.No. 108-203, 118 Stat. 493.

334. Id.335. SOCIAL SECURITY ADMINISTRATION, SOCIAL SECURITY ADVISORY BOARD, INCREASING PUBLIC

UNDERSTANDING OF SOCIAL SECURITY 4 (1997).

336. Id. at 3.337. .Id. at 14.338. . U.S. Gov'T ACCOUNTABILITY OFFICE, GAO-1 1-787T, Social Security Statements: Observations on

SSA's Plans for the Social Security Statement 1, 5 (2007).339. The Social Security Protection Act of 2004, PUB L. No. 108-203, 118 Stat. 493.

340. GOV'T ACCOUNTABILITY OFFICE, GAO-11-787T, Social Security Statements: Observations onSSA's Plans for the Social Security Statement 1, 6 (2011).

2212012-13]


In the future, if you receive a pension from employment in which you donot pay Social Security taxes, such as some federal, state, or localgovernment work... and you also qualify for your own Social Securityretirement or disability benefit, your Social Security benefit may bereduced, but not eliminated by WEP. The amount of reduction, if any,depends on your earnings and number of years in jobs in which you paidSocial Security taxes, and the year you are age 62 or become disabled.For more information, please see. .. www.socialsecurity.gov/WEP.34

1

In considering how the public forms misperceptions of the WEP, several pointsregarding the statement are of note. To begin, the statement probably leaves apotentially affected beneficiary asking a very simple question - "Why?" Only upontaking further affirmative action can a beneficiary learn more about the WEP. Alsoof note, the statement explicitly frames the adjustment to benefits as a reduction,and the statement's method of estimating a worker's potential Social Securitybenefits only reinforces this framing. In estimating future benefits, the statementlooks to the worker's past covered earnings, and future annual earnings based onthe average of the worker's annual salary during the two years preceding issuanceof the statement.3 42 Accordingly, the Statement does not apply the WEP to workerswho have periods of noncovered employment, but rather, indicates that the WEPmay reduce the worker's estimated benefit.3 43 Another point of concern, thestatement associates the benefit reduction with the beneficiary's alternativegovernment pension. Finally, the Statement does not respond to the statutorymandate to provide a clear statement of the maximum possible effects of the WEP.

Where an individual takes the affirmative step of seeking additionalinformation from the website that the Social Security Statement references, she willfind material that further compounds the potential for misperception. The very firstheading on the webpage reads, "Your Social Security retirement or disabilitybenefits may be reduced."344 Under the heading, a potentially effected beneficiarywill learn that if she worked for a government employer that did not withholdSocial Security taxes, "the pension you get based on that work may reduce yourSocial Security benefits."3 45 Hence, rather than explaining to the reader that theWEP adjusts benefits to reflect contributions, the website likely produces theimpression that the WEP reduces benefits because the reader also receives analternative government pension. From there, the logical question is why the WEPdoes not apply to individuals receiving private pensions. When the reader proceedsto the heading "Why a different formula is used," she obtains a brief explanation of

341. Id. at 19.342. Id.343. Id.344. Windfall Elimination Provision: Your Social Security Retirement or Disability Benefits May Be

Affected, SOCIALSECURITY.GOv, http://www.socialsecurity.gov/pubs/I0045.html (last visited Feb. 19, 2012).345. Id.

222 [Vol. 39:2


the progressivity of Social Security benefits.346 Additionally, the page provides thefollowing:

Before 1983, people who worked mainly in a job not covered by SocialSecurity had their Social Security benefits calculated as if they werelong-term, low-wage workers. They had the advantage of receiving aSocial Security benefit representing a higher percentage of their earnings,plus a pension from a job where they did not pay Social Security taxes.Congress passed the Windfall Elimination Provision to remove thatadvantage.347

The explanation, particularly the second sentence, reads more as a criticismthan an explanation calculated to be understood by the average beneficiary.Although the explanation does describe in basic terms the effect of noncoveredemployment on a worker's PIA, the description does not offer any clarification asto how the issue actually arises. Moreover, workers perceiving themselves to below-income workers may still wonder why the provision applies in their situation.While the underlying rationale for the WEP is highly complex, the SSA coulddemonstrate the rationale through examples - particularly if the examples relatecontributions made to benefits paid for covered and noncovered workers (with andwithout the WEP).

Besides mandating provision of Social Security Statements to eligibleindividuals, the Social Security Protection Act of 2004 also required state and localgovernment employers to provide workers hired in noncovered positions afterJanuary 1, 2005 written notice of the maximum effect of the WEP on the worker'sfuture PIA.34 The Act requires the written notice to be in a form proscribed by the

349Commissioner of Social Security and transparent to the average individual.Accordingly, the SSA instructs state and local government employers to provideeligible workers with Form SSA-1945, which provides the following description ofthe WEP:

Under the Windfall Elimination Provision, your Social Securityretirement or disability benefit is figured using a modified formula whenyou are also entitled to a pension from a job where you did not pay SocialSecurity tax. As a result, you will receive a lower Social Security benefitthan if you were not entitled to a pension form this job. For example, ifyou are age 62 in 2005, the maximum monthly reduction in your SocialSecurity benefit as a result of this provision is $313.50. This amount isupdated annually. This provision reduces, but does not totally eliminate,

346. Windfall Elimination Provision: Why a Different Formula is Used, SOCIALSECURITY.GOV,http://www.socialsecurity.gov/pubs/10045.htmi (last visited Feb. 19, 2012).

347. Id.348. The Social Security Protection Act of 2004, PUB L. No. 108-203, 118 Stat. 493.

349. Id.

2232012-13]


your Social Security benefit. For additional information, please refer toSocial Security Publication, 'Windfall Elimination Provision.,"', 0

Although Form SSA-1945 certainly meets the statutory requirement of providing anunderstandable description of the WEP's maximum benefit reduction, the Form,like the Social Security Statement, can foster misperceptions. For example, theform frames the WEP as a reduction to benefits, links the reduction to a governmentpension, and fails to provide any explanation as to why the WEP is necessary.

At a time when soon-to-be retirees are making the most important financialdecisions of their lives, the SSA generally does not furnish case specific advice."'Instead, in planning for retirement, individuals must educate themselves about theoperation of the Social Security benefits formula, the impact of decisions includingwhen to retire, and whether and to what extent provisions such as the WEP areapplicable.35 Nevertheless, despite the deficiencies in the Social Security Statementand Form SSA-1945, these documents represent an important milestone in apotentially effected beneficiary's efforts to plan for retirement. For an individualwho commenced noncovered employment after January 1, 2005, Form SSA- 1945353will likely be the first occasion on which the individual learns of the WEP. Hence,the document should provide an impetus for the individual to take affirmativeaction to learn more about the WEP, and to consider whether noncoveredemployment represents the best career decision. Workers who commencednoncovered employment prior to January 1, 2005,354 generally did not have thesame opportunity to make an informed decision regarding future employment. Forthese individuals, the Social Security Statement serves an even more importantpurpose, as the document provides the first instance in which a worker, potentiallyon the verge of retirement, likely will learn about the WEP. Moreover, thedocument provides an annual reminder to individuals who did receive Form SSA-1945.

In this context, it is not surprising that the Social Security Advisory Boardwould refer to the Social Security Statement as the "most direct and importantmeans of communicating with the public."" Given the importance of theStatement, the surprise is that as late as 2009, the Social Security Advisory Boardfound that the Statement's language was too bureaucratic and confusing.35Moreover, the report suggested that if a potentially effected beneficiary even recalls

350. SOCIAL SECURITY ADMINISTRATION, Form SSA-1945 Statement Concerning Your Employment in aJob Not Covered by Social Security, SSA.Gov, http://www.ssa.gov/online/ssa-1945.pdf (last visited February20, 2012).

351. . Jennie L. Phipps, 7 Little-Known Social Security Benefits, BANKRATE.COM,http://www.bankrate.com/finance/retirement/7-social-security-benefits.aspx?ec-id=mI078090#slide=1 (lastvisited Mar. 9, 2012).

352. .Id.

353. . The Social Security Protection Act of 2004, PuB L. No. 108-203, 118 Stat. 493.354. . Id.

355.. SOCIAL SECURITY ADMINISTRATION, SOCIAL SECURITY ADVISORY BOARD, INCREASING PUBLICUNDERSTANDING OF SOCIAL SECURITY 1 (2009).

356. SOCIAL SECURITY ADMINISTRATION, SOCIAL SECURITY ADVISORY BOARD, INCREASING PUBLICUNDERSTANDING OF SOCIAL SECURITY 15 (2009).

224 [Vol. 39:2


reading the excerpt on the WEP, the individual may not be able to discern themeaning of important information contained therein - for example, whether theprovision applies in the individual's situation."'

IV. LEGISLATIVE ACTION

Since enactment of the WEP in 1983, legislators have introduced numerousbills before Congress to modify, replace, or repeal the controversial provision - bythe author's' count, 39 bills and 2 resolutions."' Of the 39 bills, the earliest fivebills - H.R. 11, H.R. 2141, H.R. 2264, and H.R. 4277 - addressed exclusion ofmilitary reservists' benefits and totalization benefits from application of the WEP.m"'These bills are irrelevant for purposes of the present discussion, as they do notrelate to the presently existing disadvantages of the WEP, moreover, theamendments proposed became law in 1994."0 The remaining 35 bills are generallyduplicative, as the total includes companion bills from the House of Representativesand the Senate, as well as bills that have been reintroduced year after year.However, the 35 bills represent four distinct legislative proposals: (1) the SocialSecurity Fairness Act, (2) the WEP Relief Act (2004 and later), (3) the WEPRelief Act (pre-2004),36 and (4) the Public Servant Retirement Protection Act.364

357. Id.358. H.R. 1332, 112th Cong. (2011); H.R.2797, 112th Cong. (2011); S. 113, ll2th Cong. (2011); S. 113,

112th Cong. (2011); S. 2010, 112th Cong. (2011); H.R. 235, 11Ith Cong. (2009); H.R. 1221, 111th Cong.(2009); H.R. 2145, 11Ith Cong. (2009); S. 490, 11Ith Cong. (2009); S. 484, 111th Cong. (2009); H.R. 82,110th Cong. (2007); H.R. 726, 110th Cong. (2007); H.R. 2772, 110th Cong. (2007); S. 206, 110th Cong.(2007); S. 1647, 110th Cong. (2007); H.R. 147, 109th Cong. (2005); H.R. 1690, 109th Cong. (2005); H.R.1714, 109th Cong. (2005); H.R. Res. 987, 109'h Cong. (2006); S. 619, 109th Cong. (2005); S. 866, 109thCong. (2005); H.R. 594, 1081h Cong. (2003); H.R. 2011, 108th Cong. (2003); H.R. 2611, 108th Cong. (2003);H.R. 4234, 108th Cong. (2004); H.R. 4391, 108th Cong. (2004); H.R. Res. 523, 108th Cong. (2004); S. 349,108th Cong. (2003); S. 1011, 108th Cong. (2003); S. 2455, 108th Cong. (2004); H.R. 1073, 107th Cong.(2001); H.R. 2638, 107th Cong. (2001); S. 1523, 107th Cong. (2001); S. 2521, 107th Cong. (2002); H.R. 860,106th Cong. (1999); H.R. 2549, 105th Cong. (1997); H.R. 922, 103d Cong. (1993); H.R. 2141, 103d Cong.(1993); H.R. 2264, 103d Cong. (1993); H.R. 4277, 103d Cong. (1994); H.R. 11, 102d Cong. (1992).

359. H.R. 922, 103d Cong. (1993); H.R. 2141, 103d Cong. (1993); H.R. 2264, 103d Cong. (1993); H.R.4277, 103d Cong. (1994); H.R. 11, 102d Cong. (1992).

360. Social Security Independence and Program Improvements Act of 1994, PUB. L. No. 103-296, 108Stat. 1464.

361. H.R. 1332, 112th Cong. (2011); S. 2010, 112th Cong. (2011); H.R. 235, 111th Cong. (2009); S. 484,11Ith Cong. (2009); H.R. 82, 110th Cong. (2007); S. 206, 110th Cong. (2007); H.R. 147, 109th Cong. (2005);S. 619, 109th Cong. (2005); H.R. 594, 108h Cong. (2003); S. 349, 108th Cong. (2003); H.R. 2638, 107thCong. (2001); S. 1523, 107th Cong. (2001).



364. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); S. 490,111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455, 108th Cong. (2004).

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A. The Social Security Fairness Act

Among the various proposals addressing the WEP, the Social Security FairnessActs (SSFA) has traditionally received the most support in Congress. Firstintroduced by Senator Feinstein and Representative McKeon in 2001 beforeCongress," the bill has been reintroduced by Senator Feinstein in the Senate, andRepresentatives McKeon or Berman in the House, during every succeedingCongress.17 The most recent iteration of the bill - the SSFA of 2013 - is before theHouse as H.R. 1795 and the Senate as S. 896. If passed, H.R. 1795 and S. 896would repeal the WEP allowing beneficiaries who held both covered andnoncovered employment to receive Social Security benefits based on the SocialSecurity benefits formula beginning in January 2014.369

Support for the SSFA has fluctuated from 2001 to 2013; however, two patternsare evident from an examination of the bills cosponsors in the House ofRepresentatives: (1) strong Democratic support and (2) strong backing from statesin which noncovered workers are concentrated. To begin, when first introduced in2001, the Social Security Fairness Act received 185 cosponsors in the House ofRepresentatives.370 By the 110th Congress, 337 cosponsors signed onto the bill,7but support has subsequently declined to 149 cosponsors in the House during the112 Congress.37 While overall support for the bill has fluctuated, Democrats haveconsistently accounted for between 60 and 70 percent of the bills' cosponsors.Similarly, representatives from California, Colorado, Illinois, Louisiana,Massachusetts, Ohio, and Texas - the seven states in which 70 percent ofnoncovered state and local government employees are concentrated3 74 - haveconsistently provided strong backing for the SSFA. For example, whenRepresentative McKeon first introduced the bill in 2001, 51 percent of the bill'scosponsors were representatives of the above listed states. 37 Support for the SSFAwas more evenly distributed between states in subsequent Congresses; however, the

365. Compare H.R. 82, 110th Cong. (2007) (the iteration of the Social Security Fairness Act to receive themost co-sponsors), with H.R. 2011, 108th Cong. (2003) (the iteration of the WEP Relief Act to receive themost co-sponsors), and H.R. 1714, 109th Cong. (2005) (the iteration of the Public Servant RetirementProtection Act to receive the most co-sponsors).

366. H.R. 2638, 107th Cong. (2001); S. 1593, 107th Cong. (2001).367. H.R. 1332, 112th Cong. (2011); S. 2010, 112th Cong. (2011). H.R. 235, 11Ith Cong. (2009); S. 484,

111 th Cong. (2009); H.R. 82, 110th Cong. (2007); S. 206, 110th Cong. (2007); H.R. 147, 109th Cong. (2005);S. 619, 109th Cong. (2005); H.R. 594, 108 Cong. (2003); S. 349, 108th Cong. (2003); H.R. 2638, 107thCong. (2001); S. 1523, 107th Cong. (2001).

368. H.R. 1795, 113 Cong. (2013), S. 896, 113h Cong. (2013).369. Id.370. H.R. 2638, 107th Cong. (2001).371. H.R. 82, 110th Cong. (2008).372. H.R. 1332, 112th Cong. (2011).373. H.R. 1332, 112th Cong. (2011); H.R. 235, 11Ith Cong. (2009); H.R. 82, 110th Cong. (2007); H.R.

147, 109th Cong. (2005); H.R. 594, 108 Cong. (2003); H.R. 2638, 107th Cong. (2001).374. U.S GOv'T ACCOUNTABILITY OFFICE, supra note 17, at 4.375. H.R. 2638, 107th Cong. (2001).

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seven states continued to account for between 34 and 42 percent of the cosponsorsfor the bill.376

Similarly, support for the SSFA has fluctuated in the Senate.17' When Senator

Feinstein first introduced the S. 1523 in 2001, 14 Senators cosponsored the bill."'Subsequently, support for the bill peaked in 2007 with 36 Senators cosponsoringthe bill,37

' and fell to a low in 2011 when nine Senators cosponsored the bill.3"o Asin the House, the SSFA receives considerable Democratic support in the Senate,ranging from 69 to 84 percent of total cosponsors. Support from Senatorsrepresenting the seven above listed states has ranged from 11 percent to 36 percent

382of the bills' cosponsors.Although the House and Senate always referred the bills to the House Ways

and Means Committee and the Senate Committee on Finance, the bills consistently383

died in committee.While the SSFA has garnered considerable support in Congress, a prudent

balancing of the bill's advantages and disadvantages cautions against repealing the384WEP. Beneficiaries to whom the WEP applies are a vocal group. As such, the

SSFA is doubtless a politically popular bill - particularly in California, Colorado,Illinois, Louisiana, Massachusetts, Ohio, and Texas where benefits will increase,immediately or in the future, for approximately 4.7 million state and localgovernment employees if Congress passes the bill. Moreover, by repealing the

386WEP, the SSFA would directly address all of the disadvantages of the provision.On the other hand, repealing the WEP would impose significant costs at a timewhen the Social Security system is already facing long-term financial challenges.387

Specifically, the SSA, in a 2007 estimate, indicated that repeal of the WEP wouldcost approximately $40.1 billion over ten years, and increase the Social Security

376. H.R. 1332, 112th Cong. (2011); H.R. 235, 111th Cong. (2009); H.R. 82, 110th Cong. (2007); H.R.147, 109th Cong. (2005); H.R. 594, 108' Cong. (2003).

377. S. 2010, 112th Cong. (2011); S. 484, 111th Cong. (2009); S. 206, 110th Cong. (2007); S. 619, 109thCong. (2005); S. 349, 108th Cong. (2003); S. 1523, 107th Cong. (2001).

378. S. 1523, 107th Cong. (2001).379. S. 206, 110th Cong. (2007).380. S. 2010, 112th Cong. (2011).381. S. 2010, 112th Cong. (2011); S. 484, 111th Cong. (2009); S. 206, 110th Cong. (2007); S. 619, 109th

Cong. (2005); S. 349, 108th Cong. (2003); S. 1523, 107th Cong. (2001).

382. Id.383. See generally, Bill Tracking Report, PROQUEST CONGRESSIONAL, http://web.lexis-

nexis.com.ezproxy.1ibrary.unlv.edu/congcomp (last visited Feb. 25, 2012).384. Hearing: Penalty for Public Service, supra note 42, at 13 (In her testimony, Senator Collins mentions

that she receives letters regarding the WEP in the constituent Mail). Id. 4. (In his testimony, the President ofthe National Association of Retired Federal Employees indicates that the organization has received thousandsof letters from members since the bill was enacted) Id. In response to Congressional Hearings in 2003 and2005, dozens of affected beneficiaries submitted letters for the Congressional record describing stories ofhardship stemming from the WEP). See generally, U.S GOv'T ACCOUNTABILITY OFFICE, supra note 17.

385. U.S Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 1, 3, 4 (providing that 6.8 million state andlocal government employees work in noncovered employment and that 70 percent of those workers areconcentrated in the seven listed states).

386. See infra, Disadvantages of the WEP.

387. U.S Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 8.

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system's long-range deficit by roughly 3 percent.8 Additionally, repeal of the WEPwould raise considerable concerns regarding the fairness of the Social Securitybenefits formula for private sector employees when compared to federal, state, andlocal government employees.8 9 Congress enacted the WEP to address the 'windfall'benefits that accrue to workers with short careers in Social Security coveredemployment.! Permitting noncovered government employees to receive benefitsabove the statutorily intended replacement rates would run counter to thefundamental tenants of the Social Security system - progressivity of benefits thatare an earned right.39' Moreover, many of the arguments against the WEP could justas easily apply to the Social Security benefits formula absent the WEP. Forexample, if the Social Security benefits formula permits noncovered governmentworkers to receive 'windfall' benefits, one could argue that the formula has adisproportionate impact on workers who only held covered employment.

B. The WEP ReliefAct

Representative Frank was the first Congressional representative to undertake aformal effort to modify the WEP, introducing H.R. 2549 in 1997.392 At the time, thebill was unnamed, but Representative Frank subsequently entitled a modifiedversion of the bill, which he first introduced in 2004, the WEP Relief Act(WEPRA).393 Between the two versions of the bill, Representative Frank introducedthe bill in the House eight times between 1997 and 2009.394 Senator Kerryintroduced the companion bill for the early version of the WEPRA in the Senatetwice in 2002 and 2003; the later version of the bill has not appeared before theSenate.!

Representative Frank's early version of the WEPRA would have amended theSocial Security Act by restricting application of the WEP to individuals receivingcombined monthly benefits (including both Social Security benefits and benefitsreceived through a noncovered government pension) in excess of $2,000.396 Forindividuals receiving combined monthly benefits exceeding $2,000, the bill wouldhave required the SSA to derive two values (1) the individual's PIA using thetraditional formula and (2) the individuals PIA (according to the traditionalformula) minus one-half the value of the worker's noncovered monthly pension


ELIMINATION PROVISION (WEP) 7 (2010).389. U.S GOv'T ACCOUNTABILITY OFFICE, supra note 17, at 8.390. See infra, Toward Enactment of the WEP.391. See infra, Social Security: Purpose and Principles/392. H.R. 2549, 105th Cong. (1997).393. H.R 4253, 108th Cong. (2004).394. H.R. 2145, 1I lb Cong. (2009); H.R. 726, 110th Cong. (2007); H.R. 1690, 109th Cong. (2005); H.R.

4234, 108th Cong. (2004); H.R. 2011, 108th Cong. (2003); H.R. 1073, 107th Cong. (2001); H.R 860; 106thCong. (1999); H.R. 2549, 105th Cong. (1997).

395. S. 1011, 108th Cong. (2003); S. 2521, 107th Cong. (2002).396. 108th Cong. (2003); H.R. 1073, 107th Cong. (2001); H.R 860; 106th Cong. (1999); H.R. 2549, 105th

Cong. (1997).

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benefit."' The bill would have then instructed the SSA to reduce the greater of thetwo amounts derived in the previous step by applying a percentage factor to theamount in excess of $2,000 to arrive at the individual's PIA.39 The bill provided fora phasing-in of the applicable percentage factor for individuals receiving combinedmonthly benefits between $2,000 and $3,000. For combined benefits exceeding$2,000 but less than $2,250, the applicable percentage factor was 20 percent.399

Thereafter, the percentage factor increased by 20 percent for every additional $250of combined monthly benefits until reaching 100 percent (or a total reduction of theamount in excess of $2,000) at or over $3,000.0 If Congress had enacted theWEPRA, the bill would have required the SSA to recompute workers' PIAs to theextent necessary to carry out the provisions of the bill.401

The later version of the WEPRA would have operated to achieve a similarresult; however, the bill included notable difference as compared to itspredecessor.40 First, the bill would have restricted application of the WEP toindividuals receiving combined monthly benefits exceeding $2,500. Similar to theearlier version of the bill, the modified WEPRA would have instructed the SSA tocalculate two values for individuals with combined monthly benefits in excess of$2,500: (1) the individual's PIA determined through the traditional formula and (2)the same amount reduced by one-half the value of the worker's non-coveredgovernment pension.403 To the greater of the two amounts, the bill would haverequired the SSA to apply a percentage factor to the amount in excess of $2,500,thereby reducing the individual's PIA.404 The modified version of the WEPRAprovided for a phasing-in of the WEP between $2,501 and $3,334, employing acomplex formula that reduces the benefit amount in excess of $2,500 by 10 percentfor every additional $83.33.405 Notably, the modified version of the WEPRAincluded a provision that if enacted would have adjusted the threshold forapplication of the WEP, as well as the amounts through which the WEP would havephased-in, for changes in the national average wage index.406 As with the previousversion of the bill, the modified WEPRA would have required the SSA to

417recompute workers' PIAs to carry out the provisions of the bill.

408

Support for the WEPRA has fluctuated considerably from 1997 to 2009.Endorsements in the House of Representatives have ranged from a single

397. Id.398. Id.

399. Id.400. Id.401. Id.


403. Id.

404. Id.405. Id. The formula is 2.5 * (amount in excess of $2,500 / (1/12 * 30,000)) / ((1/480 * 10,000) / $2,500).

Id.406. Id.

407. Id.408. H.R. 2145, I11 Cong. (2009); H.R. 726, 110th Cong. (2007); H.R. 1690, 109th Cong. (2005); H.R.

4234, 108th Cong. (2004); H.R. 2011, 108th Cong. (2003); S. 1011, 108th Cong. (2003); S. 2521, 107th

2012-13] 229


representative cosponsoring H.R. 2145 during in 2009 to 232 representativescosponsoring H.R. 1073 in 2001.9 In general, the early version of the WEPRA -the version that excluded a wage-indexing provision - received far greater supportthan the more recent iteration of the bill.41 Similar to the SSFA, the WEPRA has

411consistently received strong Democratic support. In fact, Democrats havecomprised between 78 percent and 100 percent of the total cosponsors for each billbefore the House. In contrast to both the SSFA and the Public Servant RetirementProtection Act (discussed below), the WEPRA has not received considerablesupport in the House from representatives of the seven states in which 70 percent ofnoncovered state and local employees are concentrated - California, Colorado,Illinois, Louisiana, Massachusetts, Ohio, and Texas.41 Generally, representative ofthese seven states have accounted for between 25 and 35 percent of the bill'scosponsors in the House. 4 13 However, this pattern does have three exceptions:representatives of the seven states accounted for (1) 0 percent of the cosponsors forH.R. 2145 (2009),414 (2) 43 percent of the cosponsors for H.R. 2549 (1997),415 and

411(3) 80 percent of the cosponsors for H.R. 4234(2004). In the Senate, S. 1011 andS. 2521 received five and three cosponsors respectively, each of whom wereDemocrats, and none of whom hailed from one of the above listed states.417 On eachoccasion that the WEPRA has appeared before Congress, the bills have died in theHouse Committee on Ways and Means or the Senate Finance Committee. 418

As with the SSFA, the WEPRA has both advantages and disadvantages. Forexample, the bill responds directly to concerns regarding the disproportionateimpact of the WEP on low-income workers419 by exempting from the WEPindividuals with combined monthly benefits falling below $2,500 ($2,000 under the

Cong. (2002); H.R. 1073, 107th Cong. (2001); H.R 860; 106th Cong. (1999); H.R. 2549, 105th Cong. (1997).S. 1011, 108th Cong. (2003).

409. H.R. 2145, 11 1' Cong. (2009); H.R. 1073, 107th Cong. (2001).

410. H.R. 2145, I11 Cong. (2009); H.R. 726, 110th Cong. (2007); H.R. 1690, 109th Cong. (2005); H.R.4234, 108th Cong. (2004); H.R. 2011, 108th Cong. (2003); H.R. 1073, 107th Cong. (2001); H.R 860; 106thCong. (1999); H.R. 2549, 105th Cong. (1997).

411. H.R. 2145, 111" Cong. (2009); H.R. 726, 110th Cong. (2007); H.R. 1690, 109th Cong. (2005); H.R.4234, 108th Cong. (2004); H.R. 2011, 108th Cong. (2003); S. 1011, 108th Cong. (2003); S. 2521, 107thCong. (2002); H.R. 1073, 107th Cong. (2001); H.R 860; 106th Cong. (1999); H.R. 2549, 105th Cong. (1997).S. 1011, 108th Cong. (2003).

412. H.R. 2145, 111" Cong. (2009); H.R. 726, 110th Cong. (2007); H.R. 1690, 109th Cong. (2005); H.R.4234, 108th Cong. (2004); H.R. 2011, 108th Cong. (2003); H.R. 1073, 107th Cong. (2001); H.R 860; 106thCong. (1999); H.R. 2549, 105th Cong. (1997); U.S Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 4.

413. H.R. 2145, 111 Cong. (2009); H.R. 726, 110th Cong. (2007); H.R. 1690, 109th Cong. (2005); H.R.4234, 108th Cong. (2004); H.R. 2011, 108th Cong. (2003); H.R. 1073, 107th Cong. (2001); H.R 860; 106thCong. (1999); H.R. 2549, 105th Cong. (1997).

414. H.R. 2145, 111 Cong. (2009);415. H.R. 2549, 105th Cong. (1997).416. H.R. 4234, 108th Cong. (2004).417. S. 1011, 108th Cong. (2003); S. 2521, 107th Cong. (2002).418. See generally, Bill Tracking Report, PROQUEST CONGRESSIONAL, http://web.lexis-

nexis.com.ezproxy.library.unlv.edu/congcomp (last visited Feb. 25, 2012).419. See Discussion supra Part 3: WEP: The Problems.

230 [Vol. 39:2


early version of the bill).42 Although eliminating the WEP's disproportionateimpact represents a laudable goal, the bill would achieve this by permitting many

421workers to receive the 'windfall' benefits that gave rise to the WEP. Consider alow-income worker who held noncovered employment for 15 years, earning$20,000 annually, thereby qualifying for an $800 monthly pension benefit under herstate retirement program. Subsequently, the worker returned to school, earned a lawdegree, and obtained a job in Social Security covered employment for which shereceived maximum taxable earnings for each of the subsequent 20 years. Under theWEPRA, if the worker attains early retirement age in 2012 and elects to deferretirement until full retirement age, the worker will receive a PIA of $1,933.70 ((.9* $767) + (.32 * ($4,624-$767)) + (.15 * ($4,685.10 - $4,624))). As the combinedtotal of the worker's Social Security benefits and noncovered pension ($2,350.20)does not exceed $2,500, the WEP would not be applicable to the worker under theWEPRA. Had all of the worker's earnings been in Social Security coveredemployment, the worker would have received a PIA of $2,040.80 ((.9 * $767) +(.32 * ($4,624-$767)) + (.15 * ($5,399.40 - $4,624))). In this example, under theWEPRA, the worker received a replacement rate of 41 percent ($1,933.70 /$4,685.10) * 100). By contrast, if all of the worker's earnings had been in SocialSecurity covered employment, the worker would have received a replacement rateof 37 percent ($2,040.80 / $5,399.40) * 100). Thus, the worker receives both thebenefit of a replacement rate that is higher than statutorily intended, and a pensionfrom noncovered employment.

While the above hypothetical is an isolated example, it demonstrates that underthe WEPRA, whether 'windfall' benefits will accrue to workers is highly dependenton the size of the worker's noncovered government pension. In this sense, onemight argue that the bill embodies one of the underlying principles of the SocialSecurity benefits formula - progressivity of benefits. While there will be examplesof workers with significant earnings receiving 'windfall' benefits under the bill, thebill is more permissive of such benefits accruing to workers with smaller totalcombined benefits - that is, the workers who may benefit most from the 'windfall.'

While the above consideration represent a difficult policy debate, several otherconcerns weigh against the bill. For example, the bill does apply a modifiedversion of the WEP to the portion of combined benefits exceeding $2,500.However, the bill fails to implement a system through which the SSA can collectdata on state and local government retirees receiving noncovered pensions. Thus,the bill would permit the modified version of the WEP to apply to federal retirees toa greater degree than it would apply to state and local government retirees.Additionally, under the bill, the manner in which the SSA addresses the 'windfall'benefits problem would remain highly complex. Without further action by the SSA,issues of public misperception and resentment would likely remain.

420. H.R. 2145, 111th Cong. (2009); H.R. 726, 110th Cong. (2007); H.R. 1690, 109th Cong. (2005); HR.4234, 108th Cong. (2004); H.R. 2011, 108th Cong. (2003); S. 1011, 108th Cong. (2003); S. 2521, 107thCong. (2002); H.R. 1073, 107th Cong. (2001); H.R 860; 106th Cong. (1999); H.R. 2549, 105th Cong. (1997).S. 1011, 108th Cong. (2003).

421. See Discussion supra Part 2.E: Towards Enactment of the WEP.

2012-13] 231


C. The Public Servant Retirement Protection Act

Among the various proposals to amend or repeal the WEP, the Public ServantRetirement Protection Act (PSRPA) represents the only legislative effort tointroduce a proportional WEP.422 Representative Brady first introduced the billbefore the House on May 19, 2004, and a day later, Senator Hutchison introduced acompanion bill in the Senate. 423 Thereafter, Representative Brady and SenatorHutchison have reintroduced the bill in every succeeding Congress through 2011.424

The PSRPA provides for two alternative formulas for determining a worker'sPIA. 425 Under the bill, the applicability of a particular approach to a given worker

426turns on when the worker first commences employment in a noncovered position.For workers first commencing employment in a noncovered position after thetwelfth calendar month following the bill's enactment, the PSRPA would substitutea proportional formula for the current law WEP.427 If enacted, the bill would instructthe SSA to include both covered earnings and recorded noncovered earnings in thecalculation for AIME (henceforth, this Article will use the term total AIME todistinguish from AIME under current law).428 For purposes of the PSRPA, recordednoncovered earnings are earnings from employment in a noncovered position forwhich the Commissioner of Social Security determines satisfactory evidence isavailable in the record.429 Thereafter, the bill would require the SSA to derive PIAby applying the Social Security benefits formula, without the current law WEP, tothe worker's total AIME.43 Finally, the bill would instruct the SSA to multiply theworker's PIA by the ratio of the worker's current law AIME to total AIME.43 Theproduct represents a worker's covered PIA.

For example, consider a worker who earned an annual salary of $90,000 inSocial Security covered employment for 20 years and recorded noncoveredemployment for 15 years. As the PSRPA considers both types of earnings, theworker's total AIME would be $7,500 (($90,000 * 35) / 420). Note that theworker's total AIME equals AIME under the current law for a worker with identicalearnings stemming only from noncovered employment. Applying the SocialSecurity benefits formula, the worker's PIA under the bill would be $2,355.90 (.9 *

422. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

423. H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).424. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,

111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005).

425. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

426. Id.427. Id.428. Id.429. Id.430. Id.431. Id.

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$767) + (.32 * ($4,624 - $767)) + (.15 * ($7,500 - $767)). Again, note that theworker has obtained the same replacement rate as a worker with identical earningsarising only from Social Security covered employment - 31 percent (($2,355.90 /$7,500) * 100). Finally, the bill would instruct the SSA to decrease the worker'sPIA by multiplying the figure by the ratio of current law AIME to total AIME,resulting in a covered PIA of $1,364.20 ($2,355.90 * (((20 * $90,000) / 420) /$7,500)).

Alternatively, where an individual commenced employment in a noncoveredposition during or before the 12-month period following enactment of the PSRPA,the bill would permit the individual to take the larger of the covered PIA asdetermined under the proportional WEP described above, or the PIA determinedunder the current law WEP.432 Here, the combined effect of several of the bill'sprovisions introduces a significant complication. If enacted, the bill would applyretroactively, requiring the SSA to recompute benefits for all potentially effectedindividuals. 433 As discussed above, the bill would require the SSA to include in totalAIME, recorded noncovered earnings arising from services performed innoncovered employment after 1950.434 However, the SSA lacks data on earningsarising from noncovered employment during calendar years prior to 1978.43Beginning in 1978, the SSA collected such data through IRS Form W-2, but the

436data is often incomplete - especially from years immediately preceding 1978.Thus, for all workers who commenced noncovered employment prior to the date ofthe bill's future enactment, the proportional WEP would potentially reach back tononcovered earnings for which the SSA lacks data.

To account for the data gap, the drafters of the PSRPA included a provisionwhich substitutes adjusted total covered earnings (ATCE) for total AIME.437 Whereany portion of a worker's earnings consists of nonrecorded noncovered earnings,the PSRPA would instruct the SSA to derive ATCE by calculating the sum ofcovered and recorded noncovered earnings, and dividing the figure by the numberof months elapsed during the years in which the worker earned covered andrecorded noncovered earnings.438 Thereafter, the bill would apply the SocialSecurity benefits formula, without the WEP, to ATCE to derive a worker's PIA.439

To arrive at covered PIA for a worker, the bill would instruct the SSA to multiplyPIA by the ratio of the worker's current law AIME to ATCE.4'


433. Id.

434. Id.435. Fourth in a Series of Subcommittee Hearings on Protecting and Strengthening Social Security:

Hearing before the S. Comm. on Soc. Sec., 109th Cong. 18 (2005).436. Id.


438. Id.439. Id.

440. Id.

2332012-13]


To illustrate application of this alternative approach, imagine a worker whoearned $90,000 annually for 20 years in covered employment, 10 years innonrecorded noncovered employment, and 5 years in recorded noncoveredemployment. Additionally, assume that the PSRPA had passed in 2011, and that theworker reached early retirement age in 2012. Because some of the worker'searnings arise from nonrecorded noncovered employment, the PSRPA requires theSSA to calculate ATCE, which, in this case, equals $7,500 (($90,000 * 25) / (25 *12)). Next, the PSRPA applies the Social Security benefits formula to ATCE,resulting in a PIA of $2,355.90 (($767 * .9) + (.32 * ($4,626 - $767)) + (.15 *($7,500 - $4,624))). Finally, the PSRPA multiplies PIA by the ratio of current lawAIME to ATCE, resulting in a covered PIA, if the worker retires at full retirementage, of $1,346.20 ($2,355.90 * ((($90,000 * 20) / 420) / $7,500). As the worker'sservice in noncovered employment necessarily commenced before enactment of thePSRPA, the final step under this approach is to determine whether the worker'scovered PIA exceeds the worker's current law PIA with the WEP, which in thisexample, equal $1,624.50. As the worker's current law PIA with the WEP exceedscovered PIA, the PSRPA would permit the worker to take $1,624.50 as her monthlybenefit.

Although the PSRPA represents the only legislative effort to introduce aproportional WEP, support for the PSRPA has been relatively weak."' WhenRepresentative Brady, a Republican from Texas, first introduced the bill in the

4A2House, five cosponsors endorsed the PSRPA. Support for the bill peaked in2005, when 24 Representatives joined Representative Brady as cosponsors of thebill." 3 Thereafter, support for the bill has waned, falling to 15 and 16 cosponsors inthe House in 2009 and 2011 respectively 44, and reaching a low of seven cosponsorsduring the 112t' Congress.445 As in the case of the SSFA, two patterns are evidentfrom an examination of the PSRPA's cosponsors in the House of Representatives.First, Republicans have consistently accounted for at least two-thirds of the bill's

cosponsors.446 During recent Congresses, Republican sponsorship of the PSRPA hasrisen as high as 87.5 percent in 2009, and 100 percent in 201 1.447 Similarly,representatives from Texas - one of the seven states in which more than 70 percentof noncovered state and local government employees are concentrated" - haveconsistently provided strong backing for the PSRPA.449 In fact, representatives fromTexas constituted more than 80 percent of the bill's endorsers between 2007 and

441. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

442. H.R. 4391, 108th Cong (2004).443. H.R. 1714, 109th Cong. (2005).444. H.R. 1221, 111th Cong. (2009); H.R. 2772, 110th Cong. (2007).445. H.R. 2797, 112th Cong. (2011).446. H.R. 2797, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007);

H.R. 1714, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004).447. H.R. 2797, 112th Cong. (2011); H.R. 1221, 111 th Cong. (2009).448. U.s GOv'T ACCOUNTABILITY OFFICE, supra note 17, at 4.449. H.R. 2797, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); H.R. 2772, 110th Cong. (2007);

H.R. 1714, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004).

234 [Vol. 39:2


2011.450 In the Senate, support for the bill has consistently been limited to Senator4511

Hutchison - a Republican from Texas and the bill's sponsor. In all cases, theHouse and Senate referred the bills to the House Committee on Ways and Means or

452the Senate Committee on Finance, where the bills died in committee.

Proposing a proportional WEP, the PSRPA adopts the most equitable approachto adjusting for noncovered employment of any of the Congressionally proposedmethods, as the bill would permit worker's with noncovered employment to receivethe same replacement rates as their counterparts who received identical earnings,but only worked in Social Security covered employment.45 However, depending onwhether one emphasizes the earned right principle of the Social Security system orthe importance of a progressive benefit structure,454 the bill's method for achievingproportionality represents either a strength or a weakness. To illustrate, considertwo workers, both of whom held Social Security covered employment for 20 yearsreceiving $50,000 annually. The first worker, in addition to his Social Securitycovered employment, also earned $20,000 annually for 15 years in recordednoncovered employment. As the PSRPA considers both types of earnings, theworker's total AIME would be $3,095.23 ((($50,000 * 20) + ($20,000 * 15)) /420).455 Next, under the bill, one would apply the Social Security benefits formula,resulting in an initial PIA for the worker of $1,435.30 (.9 * $767) + (.32 *($3,095.23 - $767)).456 Finally, the bill would instruct the SSA to multiply initialPIA by the ratio of AIME to total AIME resulting in a covered PIA of $1,104(($1,435.30 * ((($50,000 * 20) / 420) / $3,095.23).457

As with the example of the first worker, the second worker held recordednoncovered employment for 15 years; however, during her period in noncoveredemployment, the second worker earned $90,000 annually. Here, the second worker

458has a total AIME of $5,595.23 ((($50,000 * 20) + ($90,000 * 15)) / 420) . If the

450. H.R. 2797, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007).

451. S. 113, 112th Cong. (2011); S. 490, 111 th Cong. (2009); S. 1647, 110th Cong. (2007); S. 866, 109thCong. (2005); S. 2455 108th Cong. (2004).

452. See generally, Bill Tracking Report, PROQUEST CONGRESSIONAL, http://web.lexis-

nexis.com.ezproxy.1ibrary.unlv.edu/congcomp (last visited Feb. 25, 2012).

453. H.R. 2797, 1l2th Cong. (2011); S. 113,1 I12th Cong. (2011); H.R. 1221, Illth Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 1l0th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

454. U.S Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 3; Hearing: Penalty for Public Service, supranote 42, at 13 (statement of Jo Anne. B. Barnhart, Commissioner of Social Security).

455. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004); 42 U.S.C.215(a)(7); 42 U.S.C. 215(b).

456. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004); 42 U.S.C.215(a)(7); 42 U.S.C. 215(a).

457. H.R. 2797, 112th Cong. (2011); S. 113, ll2th Cong. (2011); H.R. 1221, Illth Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 1 10th Cong. (2007); S. 1647, 1 10th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

458. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.

2012-13] 235


second worker reaches early retirement age in 2012 and defers retirement until fullretirement age, under the bill, the worker would have an initial PIA of $2,070.20 (.9* $767) + (.32 * ($4,624 - $767)) + (.15 * ($5,595.23 - $4,624)).459 However, onceone multiplies the second worker's initial PIA by the ratio of AIME to total AIME,one finds that under the bill, the second worker has a covered PIA of $844.90(($2,070.20 * ((($50,000 * 20) / 420) / $5,833.33).460

The foregoing examples held constant the number of years each worker heldSocial Security covered employment and recorded noncovered employment.Similarly, in both examples, the workers received identical earnings while in SocialSecurity covered employment. While both workers contributed an equal amount tothe Social Security system over an identical length of time, under the bill, the firstworker would receive a benefit $259.10 larger than that of the second worker. Theonly factor permitted to vary in the above examples was the annual salary of eachworker while in noncovered employment. Thus, one finds that under the bill, asearnings increase in noncovered employment, the decrease in PIA also increases.

For those who emphasize the progressive nature of the Social Security benefits4611formula, this result is likely desirable. After all, when compared to the first

worker who received an average annual salary of $37,142.86, the second worker isa high-earner who enjoyed an average annual salary of $67,142.86. Moreover, thesecond worker's service in noncovered employment affords her an additionalpension on which she can rely in her retirement. On the other hand, the earned rightprinciple of Social Security benefits also represents a fundamental tenet of theSocial Security system - that is, a worker receives an entitlement to benefits based

462on contributions. In this context, one can question the equity of permittingnoncovered earnings to influence the Social Security benefits of workers who held

463noncovered employment. FICA taxes apply to all remuneration for employment.Thus, a worker does not contribute to the Social Security system where she receivesother types of income, including inheritances, lottery jackpots, and treasuretroves.46 Such income can transform a life-long low-income worker into a high-income retiree overnight, yet the Social Security benefits formula does not accountfor unearned income.465 Why should the Social Security benefits formula treatincome stemming from noncovered employment differently?

(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004); 42 U.S.C.215(a)(7); 42 U.S.C. 215(b).

459. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004); 42 U.S.C.215(a)(7); 42 U.S.C. 215(a).

460. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); S. 490,111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

461. U.S Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 3.462. Hearing: Penalty for Public Service, supra note 42, at 13 (statement of Jo Anne. B. Barnhart,

Commissioner of Social Security).463. 26 U.S.C. § 3101(a) (2010); 26 U.S.C. § 3121(a) (2008).464. 26 U.S.C. § 3101(a); 26 U.S.C. § 3121(a); 26 U.S.C. § 61(a) (1984); Cesarini v. United States, 428

F.2d 812 (6th Cir. 1970).465. 42 U.S.C. § 415 (2006).

236 [Vol. 39:2


Beyond policy considerations, an inherent disadvantage exists in the PSRPA'sreliance on recorded noncovered earnings - the SSA lacks data on noncoveredearnings arising prior to 1978.466 The bill does provide for an alternative calculationwhere some portion of a worker's earnings stems from nonrecorded noncoveredemployment.467 However, the bill provides a guarantee that such a worker may takethe larger of covered PIA as determined under the PSRPA, or PIA as determined

461under the current law WEP. Consequently, if enacted, the bill would maintain the

disproportionate impact of the WEP. As the bill permits a retiree withnonrecorded noncovered earnings to take the greater of covered PIA under the

411PSRPA or PIA under the current law WEP, only those workers who receive ahigher than statutorily intended replacement rate under the WEP - high-incomeworker - will have an incentive to avail themselves of the option. The abovehypothetical provided an example of a high-income worker for whom thedisproportionately high replacement rate of the WEP provided a more attractiveoption. Thus, the bill does not immediately respond to the problem in the WEP thatboth motivated its enactment and the calls for its repeal.47

1 If enacted, the bill wouldphase-out the problem, as the option of choosing between the PSRPA calculationand the WEP calculation would only be available to workers who commencednoncovered employment during or before the 12-month period following the bill's

472enactment. However, if enacted the earliest calendar year in which the PSRPAcould no longer reach back to nonrecorded noncovered earnings would be 2024, asthe SSA first began receiving a complete data set on noncovered earnings in1983.473

Similar to the WEPRA, the PSRPA does not include a provision to implementa system through which the SSA can verify whether state and local governmentretirees are receiving a noncovered pension.474 Presently, the SSA employs dataobtained from the Office of Personnel Management to determine whether federalretirees are receiving noncovered pensions through the Civil Service Retirement

466. See Discussion supra Part 3: WEP: The Problems.467. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,

111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

468. Id.

469. See Discussion supra Part 3: WEP: The Problems.

470. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 1 10th Cong. (2007); S. 1647, 1 10th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

471. See Discussion supra Parts 2.E Towards Enactment of the WEP, 3: WEP: The Problems.

472. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

473. 42 U.S.C. § 415(b)(1)(A), (b)(2)(A)(i), (b)(2)(B)(i), (b)(3)(A) (2006); Fourth in a Series ofSubcommittee Hearings on Protecting and Strengthening Social Security: Hearing before the S. Comm. onSoc. Sec., 109th Cong. 23 (2005).

474. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

2012-13] 237


System. 475 By failing to provide for a similar system for state and local governmentretirees, the PSRPA would permit state and local government retirees to escape

476application of the proportional WEP to a greater extent than federal employees.One advantage of the PSRPA is its relatively low cost. In 2007, the SSA

estimated that a similar proposal would have cost approximately $4.6 billion over10 years, and in the long-term, would have increased the long-range deficit byroughly .5%.477 While the PSRPA imposes a relatively small cost on the SocialSecurity system, the administrative burden would be significant if Congress enactsthe bill. If enacted, the bill would apply retroactively, requiring the SSA to

478recompute benefits for all potentially effected individuals. In a 2005Congressional hearing, a Deputy Director of the SSA stated that gathering thenecessary data to administer the PSRPA and to recompute benefits for everypotentially effected worker would require approximately 2,200 work-years over afive-year period.479

V. RECOMMENDATION

Congress enacted the WEP as part of the Social Security Amendments Act of1983 to address the problem of 'windfall' benefits accruing to workers who receivepensions from noncovered employment in addition to Social Security benefits.480Although, at the time, Congress considered employing a proportional WEP todownward adjust worker benefits in proportion to earnings in Social Securitycovered employment, Congress determined that acquiring data on noncovered

4811earnings posed insurmountable obstacles. Instead, Congress elected to substitute40 percent for the percentage factor traditionally applicable to the first bracket ofAIME.482 An imprecise mechanism resulting from Congressional compromise, theWEP has numerous disadvantages including a disproportionate impact on low-income workers.483 Over the last decade and a half, Congress has attempted tomodify, repeal, or replace the WEP to no avail.484 Of the bills introduced beforeCongress, the PSRPA represents the most equitable effort to date, as the bill wouldprovide workers with pensions from noncovered employment who also qualify forSocial Security benefits with a replacement rate equal to the replacement rate ofworkers who earned an identical average annual salary, but only worked in Social

475. U.S GOv'T ACCOUNTABILITY OFFICE, supra note 17, at 5-6 (2007).476. See Discussion supra Part 3: WEP: The Problems.477. ALLISON M. SHELTON, CONG. RESEARCH SERVICE., 98-35, SOCIAL SECURITY: THE WINDFALL

ELIMINATION PROVISION (WEP). (2010).478. Id.479. Fourth in a Series of Subcommittee Hearings on Protecting and Strengthening Social Security:

Hearing before the S. Comm. on Soc. Sec., 109th Cong. 18 (2005).480. See Discussion supra Part 2.E: Towards Enactment of the WEP.481. John A. Svahn & Mary Ross, Social Security Amendments of 1983: Legislative History and Summary

of Provisions, 46 SoC. SECURITY BULL. 10 (1983).482. H.R. CONF. REP. NO. 98-47, at 120-121 (1983).483. See Discussion supra Part 3: WEP: The Problems; See also, Brown & Weisbenner, supra note 21, at

8-13.484. See Discussion supra Part 4: Legislative Action.

238 [Vol. 39:2


Security covered employment. 485 However, by considering total earnings in bothcovered and noncovered employment, the bill undermines the earned right principleof the Social Security system by permitting noncovered earnings to influence aworker's PIA.486 By adopting a provision that adjusts the bendpoints in proportionto the number of years a worker held covered employment, Congress can achievethe same equitable result, without permitting noncovered earnings to influence PIA.

The problem of 'windfall benefits' arises by operation of the calculation forAIME, which averages the sum of a worker's 35 highest earnings years in SocialSecurity covered employment over a 35-year period.487 However, the 'windfallbenefits' problem actually implicates a second component of the Social Securitybenefits formula's structure - specifically, the bendpoints that delineate the bracketsof AIME to which the progressive percentage factors apply. In 2012, the first andsecond bendpoints are $767 and $4,624 respectively,488 creating three brackets ofAIME: (1) $0 to $767, (2) $768 to $4,624, and (3) $4,625 to the level of AIME

489representing maximum taxable earnings ($8,199 in 2012). Conceptually, one canthink of the bendpoints as defining, within each bracket, both the contributions aworker must make to the Social Security system over 35 years and the benefitsavailable to a worker based on 35 years of contributions. Thus, for example, toreceive the maximum benefit available within the first bracket of AIME ($690.30 in2012), a worker reaching early retirement age in 2012 must earn $322,140 ($767 *420) during 35 of the 40 years preceding 2012.490 Holding the present FICAemployee tax rate constant (6.2 percent),49' the worker must contribute $19,972.68($322,140 * .062) to the Social Security system to receive the maximum benefitavailable within the first bracket of AIME. As such, one can perceive how theinterplay of the calculation for AIME, and the structure of the Social Securitybenefits formula create the 'windfall' benefits problem. Specifically, the averagingprovision compresses AIME for workers who held noncovered employment 49 2

while the bendpoints continue to delineate the brackets of AIME as if the workerheld Social Security employment for 35 years. Each bracket considers too high of alevel of AIME (or, conversely, too large of a contribution to the Social Securitysystem) permitting a worker who held less than 35 years of Social Security coveredemployment to receive too high of a benefit within each bracket.

485. See Discussion supra Parts 4.C: Public Servant Retirement Protection Act or 3.A.I1l: Comparisonwith a Proportional WEP; H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11IthCong. (2009); S. 490, 11 Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R.1714, 109th Cong. (2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong.(2004).

486. See Discussion supra Part 4.C: Public Servant Retirement Protection Act.

487. See Discussion supra Part 2.D: Effect of Noncovered Employment under the Social Security BenefitsFormula. 42 U.S.C. § 415(b)(1), (b)(1)(A), (b)(2)(A)(i), (b)(2)(B)(i) (2006).

488. 42 U.S.C. § 415(a)(B)(i); Cost-of-Living Increase and Other Determinations for 2012, 76 Fed. Reg.66,111, 66,115 (Oct. 25, 2011).

489. Id.; 42 U.S.C. § 415(a)(1)(A)(i), (ii).

490. 42 U.S.C. § 415(a)(B)(i), (b)(1), (b)(1)(A), (b)(2)(A)(i), (b)(2)(B)(i); Cost-of-Living Increase andOther Determinations for 2012, 76 Fed. Reg. 66,111, 66,115 (Oct. 25, 2011).

491. 26U.S.C§3101(a)(2010);26U.S.C.§3111(a)(2011).492. See Discussion supra Part 2.D: Effect of Noncovered Employment under the Social Security Benefits

Formula.

2392012-13]


As soon as one recognizes that the bendpoints essentially define thecontributions required of, and benefits available to a worker who held SocialSecurity covered employment for 35 years, a solution to the problem of 'windfallbenefits' becomes readily apparent. One must merely multiply each bendpoint bythe ratio of years worked in Social Security covered employment to the number ofyears over which the calculation for AIME averages earnings (35 years). Thesecalculations downward adjust the three brackets in proportion to the number ofyears worked in Social Security covered employment. Thereafter, one can apply theordinary Social Security benefits formula, substituting the proportional bendpointsfor the bendpoints applicable to a worker who held 35 years of Social Securitycovered employment.

As a benchmark, consider a worker who reaches early retirement age in 2012after working in Social Security covered employment for 35 years, earning anannual salary of $75,000. Here, the worker has a full record in Social Securitycovered employment for purposes of calculating AIME, which, in this example,equals $6,250 (($75,000 * 35) / 420).493 If the worker defers retirement until fullretirement age, the worker will receive a PIA of $2,168.40 ((.9 * 767) + (.32 *($4,624 - $767)) + (.15 * ($6,250 - $4,624))).494 Thus, the Social Security benefitsformula would provide this worker with a replacement rate of 35 percent($2,168.40 / $6,250).

Next, consider a worker who earned an identical salary, but held SocialSecurity covered employment for 20 years and noncovered employment for lByears. By averaging the worker's covered earnings over a period of 35 years, theSocial Security Act's averaging provision produces a compressed AIME of$3,571.40 (($75,000 * 20) / 420) for this worker.495 As the worker held less than 35years of Social Security covered employment, the next step would require adjustingthe bendpoints to reflect the number of years the worker held covered employment.By multiplying each bendpoint by the ratio of years in covered employment to 35years, one finds that the first and second bendpoints are $438 and $2,642respectively (($767 * (20/35)) and ($4,624 * (20/35)).496 By substituting theproportional bendpoints into the ordinary Social Security benefits formula, onefinds that if the worker defers retirement until full retirement age, she would receivea PIA of $1,053.50 ((.9 * $438) + (.32 * ($2,642 - $438)) + (.15 * ($3,571.40 -$2,642))) under the alternative formula.497 Note that the worker in the secondexample receives the exact same replacement rate - 35 percent ($1,053.50 /$3,035.70) - as the worker from the first example who earned an identical annualsalary and only held Social Security covered employment. Thus, the foregoingexamples demonstrate that by adjusting the bendpoints such that the benefitsavailable within each bracket of AIME are proportional to the number of years a

493. 42 U.S.C. § 415(b).494. 42 U.S.C. § 415(a).495. 42 U.S.C. § 415(b).496. 42 U.S.C. § 415(a)(B)(i); Cost-of-Living Increase and Other Determinations for 2012, 76 Fed. Reg.

66,111, 66,115 (Oct. 25, 2011).497. 42 U.S.C. § 415(a).

240 [Vol. 39:2


worker held Social Security covered employment, the SSA can provide a workerwho held noncovered employment a replacement rate that is identical to thereplacement rate of a worker who only worked in covered employment and

498received identical average annual earnings.

The issue of whether the PSRPA or the proportional bendpoints approachpresents the superior method of addressing the 'windfall benefits' problem presentsa difficult policy question - should a modified WEP emphasize the progressivity ofbenefits or the earned right tenet of Social Security benefits. By decreasing benefitsas earnings outside of the Social Security system increase, the PSRPA embodies theprinciple of progressivity, as workers with significant noncovered earnings willappear to be high-earners relative to workers who received less in noncovered

499employment, but earned an identical annual salary in covered employment.However, inclusion of noncovered earnings in the Social Security benefits formulapermits a factor other than contributions to influence a worker's potential benefit.sooThe proportional bendpoints approach would ignore noncovered earnings,achieving progressivity to the extent that the calculation considers coveredearnings. Thus, the approach emphasizes the earned right principle of benefits - aworker receives a benefit based only on contributions. However, there is anothermanner in which one can consider the problem - the two principles do not operatein isolation, but rather are interconnected. The Social Security benefits formulalooks to total earnings in Social Security covered employment, representing totalcontributions, and provides a progressive benefit based on the need demonstratedby a worker's earning level. The proportional bendpoints approach accomplishesexactly this task for the period a worker held covered employment, while permittingthe noncovered pension system into which a worker contributed to accomplish thetask for the period of noncovered employment. By contrast, the PSRPA would, atleast in part, duplicate the function of the noncovered pension.

However, the issue of which approach to calculating benefits for workers whoheld noncovered employment presents the superior option does not turn on thepolicy question alone, as there are many advantages to the proportional bendpointsapproach. For example, by only considering earnings deriving from Social Security

498. .Note that the Social Security Act would treat a worker who, for example, held Social Securitycovered employment for 20 years, and then retired, more favorably. For an individual to be subject to thecurrent law WEP, she must qualify for a noncovered pension after 1985. 42 U.S.C. § 415(a)(7)(A)(ii). In thisexample, the individual's employment record would not trigger the WEP, as the individual did not holdnoncovered employment, she simply retired. Thus, the SSA would enter 15 zero years into the calculation forAIME, divide by 420 months, and apply the Social Security benefits formula. 42 U.S.C. § 415(a), (b). As aresult, 'windfall' benefits will accrue to an individual with this type of employment record. See infra, Effectof Noncovered Employment under the Social Security Benefits Formula. Whether the individual's situationtruly compares to that of a noncovered worker who qualifies for a noncovered pension is debatable. On onehand, the individual will not have the benefit of a noncovered pension in addition to his Social Securitybenefits. On the other, the individual may have retired after winning the lottery. In the context of broader

Social Security reform, the SSA can apply the proportional benefits approach to calculating Social Securitybenefits for all workers. By applying the approach broadly, the SSA can address 'windfall' benefits thataccrue to individuals with the type of employment history described above. The potential benefits and socialcosts of broad application of this method, however, exceed the scope of this Article.

499. See Discussion supra Part 4.C: The Public Servant Retirement Protection Act.

500. Id

2412012-13]


covered employment, the proportional bendpoints approach avoids issues arisingunder the PSRPA relating to data on noncovered earnings. The SSA entirely lacksdata on noncovered earnings arising from noncovered employment prior to 1978,and has incomplete information on such earnings arising between 1978 and 1983,'o'the PRSPA must turn to an alternative approach to calculating benefits for workers

102with nonrecorded noncovered earnings. The alternative approach permits aworker with nonrecorded noncovered earnings to take the larger of PIA under thecurrent law WEP or PIA as determined through a calculation that includes ATCE."'Thus, this approach both preserves the disproportionate impact of the WEP, andpotentially introduces new issues through the ATCE calculation.5 04 The proportionalbendpoints approach entirely avoids these issues by eliminating the current lawWEP, focusing on covered earnings, and creating a single calculation applicable toall workers who receive a pension from noncovered employment.

If the SSA improves the methods by which it communicates with the publicregarding the purpose of the WEP, a proportional bendpoints approach to theproblem of 'windfall benefits' has a strong potential to allay public misperceptionsand resentment towards the WEP. As demonstrated throughout this Article, theSocial Security benefits formula is a highly complex, and involved calculation towhich the WEP adds a layer of complexity."' Understanding the purpose of theWEP requires knowledge of the policy behind the Social Security system, andlikely, examples of the effect of noncovered employment on PIA under the ordinarySocial Security benefits formula. While the proportional bendpoints approachadds an additional calculation to the formula, it removes much of the WEP'scomplexity and arbitrariness. The approach does not rely on an imprecisepercentage factor that was determined through Congressional compromise." Nordoes the method vary the applicable percentage factors based on the number ofyears a worker held Social Security covered employment." Moreover, one does notneed to understand the policy implications of 'windfall benefits' to recognize theequity of setting PIA in proportion to the number of years during which a workercontributed to the Social Security system. The PSRPA accomplishes a similar task,albeit through a different mechanism. 09 However, by permitting noncovered

501. Fourth in a Series of Subcommittee Hearings on Protecting and Strengthening Social Security:Hearing before the S. Comm. on Soc. Sec., 109th Cong. 18, 23 (2005).

502. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004)..

503. Id.

504. See Discussion supra Parts 3: WEP: The Problems, 4.C: The Public Servant Retirement ProtectionAct.

505. See Discussion supra Parts 3.C: Public Misperception and Resentment: SSA Efforts to Educate thePublic.

506. See Discussion supra Parts 2.C: The Social Security Benefits Formula, 2.D Effect of NoncoveredEmployment under the Social Security Benefits Formula.

507. See infra, Enactment of the WEP; 42 U.S.C. § 415(a)(7)(B)(ii)(V) (2006).508. 42 U.S.C. § 415(a)(7)(D).509. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 111th Cong. (2009); S. 490,

111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004).

242 [Vol. 39:2


earnings to influence PIA, the PSRPA is likely to preserve concerns among thepublic that the provision penalizes government employees for electing to work inthe public sector."'o

Although a proportional bendpoints approach to the 'windfall benefits' problemalleviates concerns regarding the disproportionate impact of the WEP, the modifiedcalculation does not address shortcomings in the SSA's ability to gather data onstate and local government employees receiving noncovered pensions. Presently,the SSA periodically cross-references beneficiary records with data from the Officeof Personnel Management to verify whether federal government retirees arereceiving noncovered pensions."' As the SSA only employs a post-entitlementmatching procedure for federal retirees, the SSA enforces the WEP against federalgovernment retirees to a greater degree than against state and local governmentretirees.512 Accordingly, along with adopting a proportional bendpoints approach,Congress should include a provision permitting the SSA to gather data throughForm 1099R on state and local government employees receiving noncoveredpensions.

Thus, substituting proportional bendpoints into the Social Security benefitsformula for workers who held noncovered employment, thereby earning anoncovered pension, is a superior option. The approach balances the progressivityof the Social Security benefits formula with earned rights inherent in SocialSecurity benefits. Moreover, the approach eliminates the need for the SSA to gatherdata on noncovered earnings or to rely on alternative calculations, including thecurrent law WEP, for workers with nonrecorded noncovered earnings. Coupledwith improved efforts to communicate the need for an alternative calculation fromthe SSA, the proportional bendpoints method has a strong probability of reducingpublic misperceptions and resentment towards the WEP. Finally, a bill whichadopts the proportional bendpoints approach must also include a provisionpermitting the SSA to collect data through Form 1099R on state and localgovernment employees receiving public pensions to ensure equal application (seeAppendix for a draft bill).

VI. CONCLUSION

Congress enacted the WEP to address the 'windfall' benefits that accrue toworkers who held both covered and noncovered employment.s' A product ofCongressional compromise, the WEP is an imprecise mechanism that hassignificant disadvantages.Sl 4 For example, the provision disproportionately impactslow-income workers.' 5 This disproportionate impact arises by operation of theWEP's regressive structure and its phase-in provision, for which a high-income

510. Id.; See Discussion supra Part 3: WEP: The Problems.511. U.S Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 5-6 (2007).512. Id. at 6.513. See Discussion supra Part 2.E: Towards Enactment of the WEP.514. Id.

515. Brown & Weisbenner, supra note 21, at 8-13.

2012-13]1 243


worker is far more likely to qualify, thereby receiving a significant benefitincrease."' Moreover, the provision neither replicates the replacement rates of theSocial Security benefits formula, nor tracks the formula's progressive structure.Administratively, the provision is difficult to enforce.5 The SSA periodicallycross-references beneficiary records with data from the Office of PersonnelManagement to verify whether federal government retirees are receivingnoncovered pensions.519 As the SSA only employs a post-entitlement matchingprocedure for federal retirees, a disparity presently exists in the degree to which theSSA enforces the WEP against federal retirees, as compared to state and localretirees. 520 Finally, considerable public misperception and resentment surrounds theWEP.521 Moreover, instances frequently arise in which retirees suffer significanthardship after having failed to include the effects of the WEP in their retirement

52plans. In planning for retirement, individuals must educate themselves about theoperation of the Social Security benefits formula, the impact of decisions includingwhen to retire, and whether provisions such as the WEP are applicable. 523 Given theinstances of personal hardship, as well as the public misperception and resentmentsurrounding the provision, one finds that the SSA is not effectively educating the

524public about a very complex provision.

Not surprisingly, the WEP has been the subject of considerable legislativeattention since the provision's enactment in 1983.52 Senators and Representativeshave introduced more than 35 bills before Congress to modify, replace, or repealthe WEP represent 4 distinct legislative proposals: (1) the SSFA,52 (2), the WEPRA(2004 and later);S27 (3) the WEPRA (pre-2004),52 and (4) the PSRPA.52 This

516. See Discussion supra Part 3.A.I: The WEP's Regressive Nature, 3.A.II: Disproportionate Effect ofthe Substantial Earnings Test.

517. See Discussion supra Part 3.A.III: Comparison with a Proportional WEP,518. See Discussion supra Part 3.B: The SSA Has Insufficient Information to Apply the WEP to All of the

Targeted Beneficiaries.519. U.S Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 5-6.520. U.S Gov'T ACCOUNTABILITY OFFICE, supra note 17, at 6.521. See Discussion supra Part 3.C: Public Misperception and Resentment: SSA Efforts to Educate the

Public

522. Id.523. Jennie L. Phipps, 7 Little-Known Social Security Benefits, BANKRATE.COM,

http://www.bankrate.com/finance/retirement/7-social-security-benefits.aspx?ecjd=ml 078090#slide=l (lastvisited Mar. 9, 2012).

524. See Discussion supra Part 3.C: Public Misperception and Resentment: SSA Efforts to Educate thePublic.

525. See Discussion supra Part 4: Legislative Action.526. H.R. 1332, 112th Cong. (2011); S. 2010, 112th Cong. (2011); H.R. 235, 11Ith Cong. (2009); S. 484,

111th Cong. (2009); H.R. 82, 110th Cong. (2007); S. 206, 110th Cong. (2007); H.R. 147, 109th Cong. (2005);S. 619, 109th Cong. (2005); H.R. 594, 108 Cong. (2003); S. 349, 108th Cong. (2003); H.R. 2638, 107thCong. (2001); S. 1523, 107th Cong. (2001).



529. H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); S. 490,11Ith Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455, 108th Cong. (2004).

244 [Vol. 39:2


Article"s analysis of the bills' demonstrates that the bill's either preserve thedisadvantages of the WEP, or introduce entirely new problems and inequities.3

To begin, the SSFA, by repealing the WEP, would eliminate all of thedisadvantages of the WEP if enacted. However, the bill would permit 'windfall'benefits to accrue to worker's who held both covered and noncovered employment,raising questions of equity as to individuals who worked in Social Security covered

132employment for 35 years.Similarly, by restricting application of the WEP to workers whose combined

covered and noncovered pensions exceed a certain dollar threshold, both versions ofthe WEPRA would eliminate many of the disadvantages of the WEP for certainworkers." However, the provision would permit 'windfall' benefits to accrue tothese workers.534 Moreover, under the WEPRA, whether 'windfall' benefits willaccrue to workers is highly dependent on the size of the worker's noncoveredgovernment pension."' While this approach emphasizes the progressive nature ofthe Social Security benefits formula, it will not always have its intended result - forexample, where a worker is entitled to significant Social Security benefits, butreceives a small noncovered pension.1' Additionally, the bill fails to address theSSA's inability to gather data on state and local government employees receivingnoncovered pensions.3

Finally, by implementing a proportional WEP, the PSRPA would eliminate theWEP's disproportionate impact on low-income workers. However, by permittingbenefits to decrease as earnings in noncovered employment increase, the PSRPAraises a difficult policy question - whether a solution to the 'windfall' benefitsproblem should emphasize the progressivity of benefits or the earned rightsunderlying Social Security benefits."' Moreover, the SSA does not have completerecords on noncovered employment.s1o Consequently, the PSRPA must rely on asecond approach to calculating benefits for workers with nonrecorded noncoveredearnings.5 4 ' As this approach includes the current law WEP, the PSRPA wouldpreserve the disadvantages of the WEP for many workers.5 42 Finally, the PSRPAdoes not include a provision permitting the SSA to gather data through IRS Form

5431099R on workers receiving state and local government noncovered pensions.

530. See Discussion supra Part 4: Legislative Action.

531. See Discussion supra Part 4.A: The Social Security Fairness Act.

532. Id.533. See Discussion supra Part 4.B: The WEP Relief Act.

534. Id.

535. Id.536. Id.537. Id.538. See Discussion supra Part 4: The Public Servant Retirement Protection Act.

539. Id.540. Id.541. Id.

542. Id.543. Id.

2012-13] 245


The proportional bendpoints approach presented in this Article provides thesuperior option to addressing the problem of 'windfall' benefits accruing tononcovered workers.m By merely multiplying each bendpoint by the ratio of yearsworked in Social Security covered employment to the number of years over whichthe calculation for AIME averages earnings (35 years), one can adjust the threebrackets of AIME, such that the benefits available from each bracket areproportional to the number of years worked in Social Security coveredemployment.5 45 This method ensures equitable benefits to public servants bybalancing the progressivity of the Social Security benefits formula with the earnedright principle of Social Security benefits.546

544. See infra, Part: 5: Recommendation.545. Id546. Id.

[Vol. 39:2246


APPENDIX

A BILL

To amend Title II of the Social Security Act to repeal the Windfall EliminationProvision and ensure equitable benefits for public servants.

Be it enacted by the Senate and House of Representatives of the United StatesofAmerica in Congress assembled,

SECTION 1. SHORT TITLE.

This Act May be cited as the "Equitable Benefits for Public Servants Act of2013"

SECTION 2. REPEAL OF CURRENT WINDFALL ELIMINATION PROVISION

"Paragraph (7) of section 215(a) of the Social Security Act (42 U.S.C.415(a)(7) is repealed."'

SECTION 3. REPLACEMENT OF THE WINDFALL ELIMINATIONPROVISION WITH A FORMULA PROVIDING A PROPORTIONAL BENEFITBASED ON CONTRIBUTIONS TO THE SOCIAL SECURITY SYSTEM FORCERTAIN INDIVUDALS WITH NONCOVERED EMPLOYMENT

(a) SUBSTITUTION OF PROPORTIONAL BENDPOINTS FOR THE AMOUNT

ESTABLISHED FOR PURPOSES OF CLAUSE (I) AND (II) OF SUBPARAGRAPH (A) OF

PARAGRAPH (1).

"(1)IN GENERAL. - Section 215(a) of the Social Security Act (as amended bysection 2 of this act) is amended further by inserting after paragraph (6) thefollowing new paragraph:""

"(7)(A) In the case of an individual whose primary insurance amount would becomputed under paragraph (1) of this subsection, who-

(i) attains age 62 after 1985 (except where he or she became entitled to adisability insurance benefit before 1986 and remained so entitled in anyof the 12 months immediately preceding his or her attainment of age 62),or

(ii) would attain age 62 after 1985 and becomes eligible for a disabilityinsurance benefit after 1985,And who first becomes eligible after 1985for a monthly periodic payment (including a payment determined undersubparagraph (C), but excluding (I) a payment under the RailroadRetirement Act of 1974 or '937 [45 U.S.C.A. §§ 231 et seq., 228a etseq.], (II) a payment by a social security system of a foreign countrybased on an agreement concluded between the United States and suchforeign country pursuant to section 433 of this title, and (III) a paymentbased wholly on service as a member of a uniformed service (As definedin section 410(m) of this title) which is based in whole or in part uponhis or her earnings for service which did not constitute employment as

2012-13]1 247


defined in section 410 of this title for purposes of this subchapter(hereafter in this paragraph and in subsection (d)(3) of this sectionreferred to as "noncovered service"), the primary insurance amount ofthat individual during his or her concurrent entitlement to such monthlyperiodic payment and to old-age or disability insurance benefits shall becomputed or recomputed under subparagraph (B).""'

"(B)(i) If paragraph (1) of this subsection would apply to such an individual(Except for subparagraph (A) of this paragraph), there shall be computed anamount equal to the individual's primary insurance amount under paragraph(1) of this subsection, except that for purposes of such computation"" "theamount established for purposes of clause (i) and (ii) of subparagraph (A) ofparagraph (1) shall equal"v

(ii) "for individuals who initially become eligible for old-age or disabilityinsurance benefits, or who die (before becoming eligible for suchbenefits), in the calendar year 1979,"" the product of the correspondingamount established under subparagraph (B)(i) of paragraph (1) and thequotient obtained by dividing

(I) the number of years during which the individual held coveredemployment; by

(II) 35 years

"Each amount so established shall be rounded to the nearest $1, except thatany amount so established which is a multiple of $0.50 but not of $1 shall berounded to the next higher $1."""

(iii) "for individuals who initially become eligible for old-age or disabilityinsurance benefits, or who die (before becoming eligible for suchbenefits), in any calendar year after 1979,"v" the product of thecorresponding amount established under clause (ii)(I)-(II) ofsubparagraph (B) of paragraph (1) and the quotient obtained by dividing

(1) the number of years during which the individual held coveredemployment; by

(II) 35 years

"Each amount so established shall be rounded to the nearest $1, except thatany amount so established which is a multiple of $0.50 but not of $1 shall berounded to the next higher $1 ."x

(C) "This paragraph shall not apply in the case of an individual whose eligibility forold-age or disability insurance benefits is based on an agreement concluded pursuant tosection 433 of this title or an individual who on January 1, 1984-

(i) is an employee performing service to which social security coverage isextended on that date solely by reason of the amendments made by section101 of the Social Security Amendments of 1983, or

(ii) is an employee of a nonprofit organization which (on December 31, 1983)did not have in effect a waiver certificate under section 3121(k) of the InternalRevenue Code of 1954 and to the employees of which social security coverageis extended on that date solely by reason of the amendments made by section

248 [Vol. 39:2


102 of that Act, unless social security coverage had previously extended toservice performed by such individual as an employee of that organizationunder a waiver certificate which was subsequently (prior to December 31,1983) terminated."x

SECTION 3. "INFORMATION FOR ADMINISTRATION OF SOCIALSECURITY PROVISIONS RELATED TO NONCOVERED EMPLOYMENT

(a) Collection. - Subsection (d) of section 6047 of the Internal Revenue Code of1986 is amended by redesignating paragraph (2) as paragraph (3) and by insertingafter paragraph (1) the following new paragraph:

(2) DEFERRED COMPENSATION PLANS OF A STATE.-(A) IN GERERAL. - In the case of an employer deferred compensation plan (asdefined in section 3405(e)(5) of a State, a political subdivision thereof, or anyagency or instrumentality of any of the foregoing, the Secretary shall in suchforms or regulations require, to the extent such information is known or shouldbe known, the identification of any designated distribution (as defined insection 3405(e)(1)) if paid to any participant or beneficiary of such plan basedin whole or in part upon an individual's earnings for service in the employ ofany such governmental entity.

(B) STATE - For purpose of subparagraph (A), the term 'State' includes theDistrict of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands,Guam, and American Samoa.

(b) Disclosure. - Paragraph (1) of section 6103(1) of such Code is amended bystriking 'and' at the end of subparagraph (B), by striking the period at the endof subparagraph (C) and inserting ';and', and by adding at the end thefollowing:

(D) any designated distribution described in section 6047(d)(2) to the SocialSecurity Administration for purposes of its administration of the SocialSecurity Act.'.,"'

SEC. 4. EFFECTIVE DATE

"The amendment made by sections (2) and (3) of this Act shall apply withrespect to monthly insurance benefits for months commencing with or after the 12calendar month following the date of the enactment of this Act. Notwithstandingsection 215(f) of the Social Security Act, the Commissioner of Social Security shallrecompute primary insurance amounts to the extent necessary to carry out theamendments made by this Act."'x

i H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); S. 490,111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004). (Usefulformatting language)

ii Id. (Useful formatting language)iii 42 U.S.C. 415(a)(7)(A) (original language of the Windfall Elimination Provisioniv 42 U.S.C. 415(a)(7)(B)(i) (original language of the Windfall Elimination Provision)v 42 U.S.C. 415(a)(B)(i)(original language of the Social Security Act)

2012-13] 249


vi Id.vii 42 U.S.C. 415(a)(1)(A)(Original language of the Social Security Act).

viii 42 U.S.C. 415(a)(B)(ii)(original language of the Social Security Act)ix 42 U.S.C. 415(a)(1)(A)(Original language of the Social Security Act).x 42 U.S.C. 415(a)(7)(E)(i), (ii) (Original language of the Windfall Elimination Provision)

xi H.R. 3630, 112th Cong. (2011) (language included in H.R. 3630. H.R. 3630 passed on Feb. 12,2012; however, as enacted, the legislation did not include the IRS Form 1099R provision). Middle Class TaxRelief and Job Creation Act of 2011, Pub. L. No. 112-96, 126 Stat. 156

xii H.R. 2797, 112th Cong. (2011); S. 113, 112th Cong. (2011); H.R. 1221, 11Ith Cong. (2009); S. 490,111th Cong. (2009); H.R. 2772, 110th Cong. (2007); S. 1647, 110th Cong. (2007); H.R. 1714, 109th Cong.(2005); S. 866, 109th Cong. (2005); H.R. 4391, 108th Cong. (2004); S. 2455 108th Cong. (2004). (Usefulformatting language)

An Equitable Approach to Addressing 'Windfall' Benefits

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